Covid-19 Impact On Pension Funds May Have Severe Consequences – Zamani Letjane

The coronavirus outbreak has created significant turmoil on financial markets in South Africa as well globally and combined with the country’s uncertain economic climate, pension funds under severe pressure.

Meanwhile, employees are relying on their employers for their pension plans to continue as normal.

In an interview with Business Report founder and managing director of Akani Retirement Fund Administrators Zamani Letjane said the Covid-19 pandemic had a severe impact on South African pension funds, which would result in catastrophic consequences going forward.

“Covid-19 has robbed everyone and the lockdowns have brought economic activity to its knees not only in South Africa but throughout the world and retirement funding relies on the growth of the financial market.

“Today most asset managers are growing at about 2 percent, whereas CPI is at 5 percent so you can imagine … there is hardly growth at all. So for the two years where no growth is expected there will be a serious impact on retirement funds,” he said.

Letjane said another important matter was the one where employers were dormant and were not in a position to pay salaries. “Salaries contribute towards retirement funding because employers deduct employees’ contributions and pay over into the pension fund. Now that activity is sort of minimised as well.

“I say minimised because we look at other employers such as municipalities at least 95 percent of them are able to contribute towards their employees’ retirement funds because the employees are there and are providing services,” he said.

Letjane said in the private sector there was hardly any activity and if there was, it was at a minimal level and as a result of that, retirement funding was getting affected significantly.

The national lockdown effected by President Cyril Ramaphosa in March to try and slow down the spread of the coronavirus has resulted in significant financial strain.

Many employers are struggling to pay salaries or have been forced into a position where they can only pay reduced salaries. This directly impacts contributions to retirement funds with some employers seeking temporary relief from the obligations placed on them by the Pension Funds Act.

“We have seen a significant decline in terms of contributions to retirement funds,” said Letjane. “The Financial Services Conduct Authority (FSCA) recently sent out a circular requesting various retirement schemes to apply to the FSCA to have their rules amended to accommodate the shortfall of contributions.”

Letjane said private-sector pension funds had been particularly hit hard by the move by some companies to suspend contributions in an effort to mitigate the effects of salary cuts.

“Government, local government and municipal pension funds have hardly felt the brunt due to the fact that the sectors they service are mostly essential services and as front-line workers, they have been active throughout the pandemic.

“The majority of my clients are local government and about 1 percent have suspended pension fund contributions,” he said.

Letjane urged employers to at least try to contribute towards the risk-benefit so that the employees had some form of protection.


Written by Ph

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

The Supreme Court of Appeal Grants FITA Leave to Appeal Tobacco Judgment

Hospital Managers Suspended After Patient Dies In Parking Lot ‘Medical Cubicle’ In Northdale Hospital