BPOPF warns as pension cash-outs spiral

Mbongeni Mguni | Monday August 4, 2025 06:00

Public appeal: Malindah says the crisis caused by rampant pension encashments is not something in the future, but the present PIC: MBONGENI MGUNI

Changes to the Retirement Fund Act in October 2022 have allowed different classes of pension fund members to encash greater amounts of their savings for loans, mortgages, and medical expenses or receive a cash payout of 50% of savings, rather than the previous one-third.

Local pension funds estimate that at least seven out of every 10 pensioners are cashing out the maximum 50% at retirement, a situation that leaves many with net replacement ratios lower than the ideal. The net replacement ratio is the ratio of one’s pension compared to the final salary before retirement, which indicates how a pensioner will be able to survive after retirement.

“When someone retires, they should be getting at least 60 to 80% of what they were getting before retirement, but now after that 50% encashment, people are being left with much less,” BPOPF chair, Gaone Macholo said at a briefing on Wednesday. “We are seeing that for some who would have been left with 88% of their salary, after cashing that 50% they are getting less than that or up to 50% to live on.”

Macholo, who is also the Director of the Directorate of Public Service Management, warned that pensioners who were cashing out the maximum entitlement often mistakenly believed they could initiate lucrative businesses.

“Everyone would like to start a business with this money, but we do know that the odds of making it are not too high,” she said.

BPOPF chief executive officer, Moemedi Malindah, who estimated that encashments reached P266 million over 1,192 pensioners in the past financial year, noted that an old-age poverty crisis was rapidly building.

He said whilst pensioners would like to explore profitable ventures and other income streams, the pension should remain the core of their retirement earnings and its value should be protected.

“We know that you can do a lot of things but the pension should be core in supporting your lifestyle, rather than taking a risk and doing this and that and it does not work out,” he said in response to BusinessWeek questions at the briefing. “If you encash that pension up to 50% and your pension declines, your expectations may not necessary go down. “We have seen people with an average of 120% of their salary but because of encashing saying ‘I’ll try a project,’ most of the time it doesn’t survive and then there are issues.”

Malindah said the economy over the decades had changed in such a way that parents and grandparents were increasingly taking care of their adult children, deep into old age. The depletion of pensions through 50% encashments was only making the situation worse, he said.

“Before, you knew that if you go to school and pass, you would get a job and help your parents, but now it’s parents still helping children. “It’s a crisis from Day One because the core that should have supported you is already reduced before you even start. “We are really appealing to members to say ‘just consider’ even though people have pressing issues in their lives. “Sit with someone and talk about this, rather than saying ‘I will take that 50% because it’s there.’”

The BPOPF’s assets under management rose to P116 billion as at March 31, 2025, from P108 billion a year earlier, a performance achieved despite significant domestic and international economic turmoil.