The National Treasury is expected to table proposed changes to South Africa’s pension system before the end of December for public comment, says the Congress of South African Trade Unions (Cosatu).
The country’s largest trade federation says it has held extensive engagements with Treasury around the proposed changes, with an official Amendment Bill expected to be tabled in parliament in February 2022, following the discussion document.
The proposals will effectively introduce a new pension system that will allow people to access a portion of their savings early.
In an August presentation to parliament, the National Treasury’s head of tax and financial sector policy Ismail Momoniat said that the proposed system would allow for limited withdrawals but still allow for fund preservation and ensure that people still have enough money for retirement.
Momoniat described the new retirement plan as a ‘two pot’ system:
- The first pot for longer-term financial security – Members must preserve their contributions and the compounded growth invested. They will not have access to this portion of their funds until they retire.
- The second pot for short-term financial relief – Members may access the fund value for emergencies even while employed and a member of the fund.
Momoniat gave an example of anywhere between 10% to a third of the savings being accessible early, with the rest of the money continuing to be saved for retirement.
The actual split across the two savings pots and how much can be withdrawn is expected to be detailed in Treasury’s discussion document released later this month.
The opposition Democratic Alliance had previously proposed its own pension reform system. However, the private member’s bill was rejected by ANC MPs in parliament this week ahead of Treasury’s proposals.
The DA’s Pensions Funds Amendment Bill proposed allowing retirement fund members to access a portion of their retirement savings in cash before retirement as a guarantee for a loan.
The opposition party has described the draft bill as crucial in the fight for ‘people power over state power’ in South Africa.
The bill proposed amending the current Pension Funds Act to allow pension fund members to obtain a loan secured by a guarantee from a registered pension fund to alleviate financial pressure during an emergency.
In this case, the bill directly references the Covid-19 emergency or any other emergency similar to the pandemic.
By enabling a member to access a pension-backed loan, that member will be able to leverage their pension fund investment before their retirement date without eroding their provision for eventual retirement.
Lending institutions would then offer loans to pension fund members at competitive interest rates and over extended or deferred payment periods, given that the loan is fully guaranteed.