Retirement savings and COVID-19
Many fund members face the prospect of not being able to afford their full contributions. Fortunately, funds may make appropriate provisions for reduced contributions, with the blessing of the FSCA and SARS
By: MONEY SMART NEWS
Saving for retirement is one of the most important goals for most people. Starting to save as early and as often as possible is the key to ensuring a sustainable income once you retire. However, the current pandemic has temporarily disrupted some employers and employees’ ability to contribute towards retirement savings funds due to financial distress.
The Financial Services Conduct Authority (FSCA) has issued a communication that retirement funds may make some rule variations to allow for provisional agreements between employer and employees to provide temporary relief from making payment of contributions to retirement funds, where there is proof that the employer is in financial distress.
According to the FSCA, while COVID-19 may impact employers’ and employees’ ability to comply with the full, partial, or even any payment of contributions in terms of section 13A of the Pension Funds Act (PFA), most funds have existing relevant rules for distressed employers and members. The FSCA encourages them to apply these rules to alleviate the financial difficulties that they may be facing, some of which include:
- A provision for temporary absence from work (with or without pay);
- A break in service (in instances where employees are not working);
- A postponement of contribution payments; and/or
- reduction of pensionable service (in respect of employees who are working reduced hours).
For funds that do not have these or analogous rules, they are requested to submit such relevant rule amendments to the FSCA urgently. Funds are advised to indicate the effective date for these amendments agreed to by funds and employers.
The FSCA has also indicated that they have consulted the South African Revenue Service (SARS), which has advised that such amendments will not jeopardise the income tax approval status of the retirement fund concerned. This means that fund members will continue to enjoy the tax deductions and preferential tax treatment that comes with contributing to a retirement fund.
In each of these situations, the priority is to assist people in making smart choices to lessen the impact on their lives and livelihoods and to achieve the best possible outcomes for all. However, whatever the situation, the key is to communicate. The employer needs to communicate directly with employees or via a union representative about what the situation is, and the employee needs to ask the right questions if they need more information.
As a fund member, be sure to read all the communication that might have been sent to you from your retirement fund. Speak to your HR department or employer about this, or contact the principal officer of your retirement fund.
Empower yourself today, and minimise the impact of this pandemic. This situation will eventually pass, and the ultimate goal is for your retirement funds to be as minimally affected as possible.
This information was sourced from Money Smart News (August 2020 issue), supporters of the annual Money Smart Week South Africa.