Industry reports show that government is evaluating changes in South African legislation where pension funds will be compelled to invest in state owned entities such as Eskom, the SABC, SAA and Transnet. Should such changes be passed, the financial security of retirement fund members could be negatively affected.
Such legislation will have significant impact on retirement fund members’ saving for their retirement days.
The three factors determining the financial security and quality of life of retirees are:
- member and employer contributions to the retirement fund: in order to enjoy a sufficient retirement pay-out value, fund members will need to significantly increase their contributions
- retirement age: the current retirement age in South Africa is 63. If members can’t afford to increase their contributions they will have to work longer. Many companies aren’t keen to extend employees’ retirement age unless they have special skill sets
- members want the greatest return for the least amount of risk: should government pass this proposed legislation and members find they can’t meet the mitigating criteria of the first two factors they could be forced to take on more risk to compensate for performance drag of the prescribed assets they will have to invest in
What relevance does this have for Perthonians and other South Africans expats living abroad? They’ll face exactly the same risk as those pension fund members living in South Africa – with one notable exception: expats already living abroad have the option to emigrate and in so doing have their pension funds, if qualifying, paid out for transfer to their new home countries.