Two-pot system for retirement savings
The South African Government has made retirement reform a priority over the last few years. The main objective of retirement reform is to provide better financial outcomes for retirement fund members. Government’s aim is to encourage South African households to save more for retirement and to preserve their retirement fund savings. Unions have made things difficult, but we’ve seen progress and some of the proposals have already been implemented.
Current legislation does not allow for withdrawals from a retirement fund while being employed. A member may only access the funds upon termination of service with their employer (resignation, dismissal, retrenchment, etc). This leads to employees resigning from their employer only to get access to their retirement savings, which defeats the purpose of saving for retirement.
Another concern is that members do not preserve their retirement savings when changing jobs and this leads to insufficient provision for retirement.
The objective of the two-pot system for retirement savings is to address the above-mentioned issues and to provide alternative options.
What is the two-pot system?
A discussion paper was released by National Treasury. This discussion paper makes proposals on the design structure of a two-pot system for retirement savings, which would restructure retirement savings to allow for limited pre-retirement withdrawals and introduce Government’s longstanding retirement reform proposal on preservation. The paper outlines a system where a person’s retirement savings will in future be split into two pots:
- One third of a member’s contributions will be invested in this pot.
- This pot will give retirement fund members access to their funds, not only at retirement but also at any time before retirement.
- The other two thirds will be invested in this pot.
- These funds are only available at retirement and must be used to buy a monthly pension.
Vested rights will be protected. This means that any savings that you have accumulated prior to implementation date (possibly in 2023) will be subject to current legislation. Your retirement savings before this date will therefore not be impacted.
It is important to make an informed decision regarding retirement fund withdrawals. The proposed legislation provides relief for retirement fund members, but also comes at the risk of not having sufficient capital/funds at retirement.
For any questions regarding your retirement fund, please contact Boshoff Visser Employee Benefits (Pty) Ltd.
Tel : 021 914 9604
Email : email@example.com
Article written by: Ferdi Jacobs
Director: Boshoff Visser Employee Benefits (Pty) Ltd