Medium-term budget: Pension fund legislation expected to take centre stage

PENSION Fund legislation is expected to take the centre stage in the Medium-Term Budget Policy Statement (MTBPS) that will be tabled on November 4, three days after the country's local government election.

The National Treasury has rejected a number of proposals in the Pension Fund Amendment Bill 2020, which proposed to allow workers to access a portion of their retirement savings immediately.

Treasury has so far preferred an arrangement that would allow people to withdraw from pension funds with a limit of a third, or up to 20 percent, under certain conditions, in three to five years.

Finance Minister Enoch Godongwana is set to announce the pension reforms after the Treasury proposed a “two-pot” system that would allow small withdrawals while having preservations.

Alexander Forbes chief economist Isaah Mhlanga has said that over and above the realities of the constrained fiscus over the medium term, “we expect a clarification of the social security and pension fund reforms, which the National Treasury has been championing for many years”.

“The two-pot system, which was suggested just before the now withdrawn Green Paper from the Department of Social Development, is a sensible one that can increase savings, preservations while providing access to a portion of savings to deal with short-term economic shocks such as Covid-19,” Mhlanga said.

The MTBPS sets out the policy framework for the February Budget, updates Treasury's economic forecasts, and adjusts the budgets of government departments.

Mhlanga said the overall theme of the MTBPS would be about stabilising the economy, given the negative impact of Covid-19 and the July riots, and to bring the debt on sustainable levels.

The state of finances had not improved to a great extent as better-than-expected tax revenues due to commodity price performance had been offset by unplanned expenditures.

“More so there are emerging spending pressures that need to be balanced with the long-term need to invest in public infrastructure,” Mhlanga said.

“All the spending pressures that are not related to the fiscal response to Covid-19 will require tough trade-offs, removing nice to haves and vanity projects and focusing on fundamentals that cushion households and businesses.”

Sanlam Investments chief economist Arthur Kamp said the main budget revenue was projected to be up to R100 billion better in 2021/22 than initially expected, buoyed by the commodities bounce.

Kamp said the main budget balance was expected to amount to -6.9 percent of gross domestic product (GDP) in 2021/22, down from -9.9 percent of GDP in 2020/21, sufficient to stabilise the government’s gross loan debt ratio in the near term.

“Looking ahead, the primary budget balance was expected to improve from a deficit of -2.7 percent of GDP in 2021/22 to a small surplus over the medium term, assuming that the announced fiscal consolidation path remains broadly intact.

“However, it must also be pointed out that new debt continues to be issued at higher real interest rates than the current trend growth rate in real GDP.

“And, looking further ahead, the expected improvement in the primary budget balance over the medium term is unlikely to be sufficient, given current information, to prevent the debt ratio from increasing again over time, ” Kamp said.

– BUSINESS REPORT