Pensioners risk financial ruin after N$375 000 retirement cash-out, experts warn

The government’s proposal to increase the retirement lump sum threshold for Namibians from N$50 000 to N$375 000 aims to provide financial relief, but could leave pensioners living as paupers in the long run.

This increase was proposed by minister of finance and social grants management Ericah Shafudah while announcing her ministry’s budget in Windhoek last Thursday.

The proposal is part of the policy changes the minister announced during the event.

Previously, retirees were limited to a N$50 000 lump sum withdrawal from their retirement funds

“Increasing retirement funds’ single commutation threshold will provide relief for senior citizens,” Shafudah said.

The Government Institutions Pension Fund (GIPF), however, warns that this may lead to financial hardships further down the line.

In Shafudah’s budget speech, she said: “Increasing the retirement fund’s single commutation threshold at retirement from N$50 000 to N$375 000 to provide relief for senior citizens by increasing the disposal incomes of senior citizens, offering them a cushion against inflation experienced in recent years . . .”

A ‘commutation threshold’ refers to the maximum amount a pensioner can withdraw as a lump sum from their pension fund upon retirement.

Currently pension fund members can access one third of their pension amount as a lump sum upon retirement, while the remaining two thirds are reserved for future pension payments.

If the calculated two-thirds amount is less than N$50 000, the member can receive the entire amount as a lump sum.

Shafudah’s proposal involves that if the calculated two-thirds amount is N$375 000 or less, the pension fund member can access it as a lump sum.

This amount will not be taxed, further providing pensioners relief.

Melkizedek Uupindi, the chief legal and compliance adviser at the GIPF, says a larger withdrawal would provide retirees some flexibility.

“Instead of N$50 000, the member can have N$375 000, and they take it home,” he says.

However, if the pensioner were to outlive their money, they would be financially burdened. “There is the risk that the member could spend the whole N$375 000 in the following few years, and may actually live longer and the money would have been depleted,” Uupindi says.

Bigger lump-sum withdrawals would also impact the fund’s cash flow, as larger amounts would be paid out immediately.

This would shrink the total fund size, but is not considered a significant risk, Uupindi says.

He says the GIPF is prepared for such a scenario, although it may pose some cash flow challenges.

“We owe the member this money, so we just have to rearrange to make sure we’ve got enough cash flow to accommodate that change,” he says.

South Africa’s commutation threshold is N$250 000.

Mineworkers Union of Namibia (MUN) general secretary George Ampweya has welcomed the proposal, calling it a progressive step towards enhancing retirees’ financial security.

“Allowing our senior citizens greater access to their lifelong savings, this policy change plays an important role in improving their livelihoods, ensuring a dignified standard of living and comfort beyond their years of active employment,” he says.

Ampweya says the increased cash-out amount would provide retirees some financial relief.

“This intervention would not only provide immediate financial relief to retirees, but would also contribute to the broader socio-economic fabric of Namibia and less dependency on government grants alone. “Retirees would be able to address pressing financial needs such as healthcare, housing, and family support, which were often constrained under the previous limitations.

“The ability to manage these fundamental aspects of life with greater ease makes a real difference in ensuring our older population enjoys a rewarding retirement,” he says.

Ampweya says the increase in available funds could stimulate local economies. “Retirees, who now possess greater purchasing power, could contribute to the economic dynamism by spending on goods and services within their communities.

“While we celebrate this milestone, the union remains committed to advocating for further enhancements to the welfare of all Namibian workers and retirees,” he says.

Meanwhile, labour expert Herbert Jauch says he is positive about the government’s proposal.

“This seems like a positive move, but without knowing the details I cannot comment much,” he says. Economist Omu Kakujaha-Matundu says the extra money would go a long way in elevating pensioners’ suffering after retirement.

“After all the years of toil and suffering and being overtaxed, pensioners really need a breather at retirement,” he says.