Finance minister develops safety net to protect depletion of retirement funds by hard-pressed workers
National Treasury has proposed a Bill to amend the Pension Fund Act to give partial provision for early access to pension fund savings to workers that may find themselves in dire financial situations that might necessitate them to access their retirement funds early.
ENSafrica’s Associate Themba Maduna writes:
On 29 July 2022 the Minister of Finance (‘National Treasury’) published the Draft Revenue Laws Amendment Bill (the ‘Bill’) in terms of which the minister proposes certain amendments to the existing pension funds system.
Importantly, the Bill proposes that the Pension Funds Act be amended so as to introduce what is colloquially referred to as the ‘two-pot system’.
The rationale behind the two-pot system is that ‘these amendments aim to encourage members to preserve their retirement savings by making it more flexible to accommodate unforeseen pressures that members face during the span of their working life’.
The two-pot system envisages that, as from 1 March 2023, an employee’s contributions to a pension or provident fund will be split into two. Not more than one third of the contributions will be paid into a ‘savings pot’.
The funds in the savings pot will be accessible to an employee if that employee faces financial difficulties.
The other two thirds of the contributions will be paid into another account which the member will not be able to access prior to the date of retirement (the ‘retirement pot’).
Key takeaways from this amendment include, inter alia, the following:
- The member’s right is limited to one withdrawal from the savings pot in any 12-month period.
- The value of each such withdrawal from the savings pot may not be less than R2 000.
- Pension funds, pension preservation funds, provident funds, provident preservation funds or retirement annuity funds have an obligation to allocate individual contributions in accordance with the two-pot system as from 01 March 2023.
- The savings pot will be accessible at any time, but the retirement pot will not be accessible before retirement.
- The two-pot system spreads the availability of the lump sum that would usually become available upon retirement so that it is accessible when it is most needed.
- Although it is envisaged that the proposed system will be introduced as from 1 March 2023 this date is optimistic, given the preparatory work that still has to be done.
