South Africa’s National Treasury has published draft reforms aimed at encouraging citizens to have easily accessible savings, while also ringfencing funds meant for retirement.
The so-called two-pot system will allow individuals to contribute one-third of savings into an account that can be accessible at any time, while two-thirds must only become available at retirement.
“The two-pot system option will present a better balance between ensuring preservation of retirement savings and allowing some withdrawals through a savings vehicle incorporated into the retirement funds,” the statement from the National Treasury read in part.
The reforms have been on the agenda for almost a decade, but gained momentum after the coronavirus pandemic upended the economy and pushed the unemployment rate to a record high.
That’s led to mounting calls on the government to make retirement provisions more readily accessible – a step that could have dire socio-economic consequences if mishandled and pensions are frittered away.
According to South African-based money manager Momentum Investments, which manages more than R608 billion ($37 billion) in assets, only 6% of South Africans can afford to retire comfortably, which they describe as getting a pension of at least 75% of their final salary.
South Africa’s savings rate climbed to 20% of gross domestic product by 2021, from 17% in 2020, as households and corporates hesitated to spend in an economy that had extended its longest downward cycle since World War II. Despite the bump, the country still trails global peers, which have a savings rate of as much as 26% of GDP, according to data from the World Bank.
Interested parties have until Aug. 29 to submit comments and queries to the National Treasury on the proposals.