The Government Employees Pension Fund (GEPF) of South Africa has warned of a temporary liquidity crisis if there are large-scale resignations involving public servants wanting to cash out their pension funds.

The GEPF told the Sunday Times that if public servants resign en masse it could lead to cash constraints on any fund and carry the secondary effect of a negative shock on asset prices at the dates of withdrawal.

“This is due to pension funds basing the investment strategy on a long-term view of the pension obligations. Given the GEPF volumes, a high number of resignations would carry a risk of liquidity pressures in the short term,” it said.

This follows the National Treasury releasing draft reforms aimed at encouraging South Africans to have easily accessible savings while also ringfencing funds meant for retirement.

Under the new Draft Revenue Laws Amendment Bill, the Treasury envisages a ‘two-pot’ system under which members would be allowed to access up to a third of their net retirement fund contributions and accrue investment returns on an annual basis to provide short-term financial relief.

The new legislation will also require that the remaining two-thirds are preserved over the long term, which will improve retirement outcomes for the majority of fund members relative to the status quo:

• 1/3 accessible savings pot;
• 2/3 retirement pot subject to full preservation until retirement.

The amendments enable South Africans to also save for non-retirement purposes (e.g. emergencies) via their retirement funds, whilst preserving more of their savings for retirement.

“These amendments aim to encourage members to preserve their retirement savings by making it more flexible to accommodate unforeseen pressures that members face during the span of their working life.

“It makes it possible for workers not to resign from their employment merely to access their retirement funds and would have assisted members during a crisis like the Covid-19 pandemic, when many employees faced reduced salaries or were not paid at all during that time,” National Treasury said.

Public servants union Cosatu said that the new draft retirement legislation is likely to trigger a resignation rush by public servants hoping to be allowed immediate access to a portion of their retirement savings, reported the Sunday Times.

Cosatu’s parliamentary coordinator, Matthew Parks said that the federation is fielding questions from civil servants who warn that they will resign and cash out on the eve of the promulgation of the law if they were not allowed some access to their money.

“There will be a run on retirement funds in March next year if this is not clarified; workers are bleeding. Public servants will resign to cash out; we are trying to prevent that scenario. Treasury forgets this is workers’ money; it’s not their money,” said Parks.

Sanlam’s latest benchmark survey of South Africa’s retirement industry showed that 56% of consumers said they do not agree with the proposed system.

Momentum Investments, which manages more than R608 billion in assets, told Bloomberg that only 6% of South Africans can afford to retire comfortably, which they describe as getting a pension of at least 75% of their final salary.

South Africans are scrambling to overcome short-term financial challenges at the cost of their long-term investments, said Paul Nixon, head of behavioural finance at Momentum Investments.

An unpredictable turbulent economic landscape amid rising living costs and high unemployment levels has shifted behaviour in retirement investments, he said. “There was certainly no shortage of uncertainty over the past two years, and sadly many investors with living annuity products suffered losses.”

Interested parties have until 29 August to submit comments and queries to the National Treasury on the proposals.