Treasury’s head of tax and financial sector policy Ismail Momoniat says that the government is in consultations to introduce a new retirement system that will allow people to access a portion of their savings early.
Speaking in parliament’s standing committee of finance on Tuesday (24 August), Momoniat said that Treasury is now close to agreeing on the new plan, with talks ongoing with unions and retirement funds.
This system will 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.
“That second pot, when it’s built up a bit of money, is going to be a form of tax-free savings, where after three or five years members will able to start withdrawing against these funds,” he said.
“To put this system in place will require a fundamental restructuring of the current tax system.”
Momoniat said he was pretty confident that Treasury will release a bill outlining the new system for comment by the October Medium Term Budget Policy Statement (MTBPS).
“Linked to that will be a proposal that anyone who is employed must put aside money (as part of) a system of auto-enrolment.
“Many people who work but still don’t contribute towards a retirement fund. So we want to have a sort of auto-enrollment, which may later become a form of mandatory reservation.”
Momoniat said this would not only apply to people who earn wages but also contract workers, such as Uber drivers, who will be given much more coverage under this new system.
He said that Treasury would also tighten the regulations that allow people to withdraw all of their funds when they resign.