Something’s gotta give and it’s not government

Something’s gotta give and it’s not government

Not for the first time, I received an email from a client whose domestic worker is close to retirement and who is concerned about having “too much money” and that this will impact on her ability to qualify for an old age pension. She has been told (via the grapevine) that when she applies for a pension the government will investigate her personal circumstances and if she is “rich” she will not qualify for a pension.

There are currently more than 15million South Africans who receive some form of State Social grant. Clearly this is not sustainable but more concerning than these figures is the perception that if one saves and acquires “wealth” during one’s working life then you will not qualify for a state pension. Something is seriously wrong when people are discouraged to save for the sake of receiving a pension of R1140pm.

There is currently fairly complicated way of working out who qualifies for state grants. For an old age pension (for 2012 tax year) it is as follows: anyone earning less than R13680 (R1140*12) per annum will qualify for the full pension. The pension decreases proportionately as the income rises and anyone earning more than R44880 pa would not qualify for any old age pension. In addition to this there is an “asset” test and anyone with assets of more than R547200 (excluding the value of their house) would also not qualify for a pension*.

Clearly there is a lot more education that is required – people need to be encouraged to save, even at the risk of not qualifying for an old age pension. The current situation, just like defined benefit pension schemes, is not sustainable. More people are living longer and there are not sufficient new members entering the “scheme” to continue to cross-subsidise the elderly. Something’s got to give – and it cant continue to be government!

 

Note: R547000 invested into the RSA Retail Bond (2 years at 7.25%) would currently generate about R3300 pm and would still allow someone to qualify for a partial grant. R44880 pa equates to around R3740 pm. In addition to this it is my understanding that any money in a retirement product is not regarded as an “asset” and so workers should be encouraged to save into retirement products…even R1million in a living annuity with an income draw of 2.5% would still provide an income that is below the current old age pension threshold and would still allow pensioners to qualify for state assistance.