South African President Cyril Ramaphosa has signed into law the Revenue Laws Amendment Bill of 2023, which establishes a ‘two-pot’ system that gives members of retirement funds access to retirement savings without having to resign or cash out entire pension funds.
The amendment law introduces a ‘two-pot’ retirement system to address the concerns related to lack of preservation before retirement and lack of access to retirement funds by households in financial distress.
According to a statement by the Presidency, this retirement system comprises a savings and retirement component for contributions made after 1 September 2024, while historical retirement benefits will be housed in a vested component.
Individuals will have access to amounts in the savings component before retirement for times of financial distress, and the amounts in the retirement component are preserved until retirement.
“The primary objective of the two-pot retirement system is to provide flexibility for fund members to access their retirement savings during emergencies, without necessitating resignation. The reform introduced by the legislation strives to strike a balance between long-term security and immediate needs, recognising life’s unpredictability,” said the Presidency.
It permits fund members to access a portion of their savings during crises, such as those seen during the COVID-19 challenges.
These changes ensure the retirement system remains responsive to diverse financial needs, supporting both long-term financial security and immediate assistance during emergencies.
Traditional retirement systems primarily focus on long-term savings, often lacking the adaptability to address immediate financial crises.
The Congress of South African Trade Unions (COSATU) celebrated Ramaphosa’s signing of the Revenue Laws Amendment (RLA) Bill, saying it was one of two progressive amendment bills that will enable the long sought Two Pot Pension Reforms to take place on 1 September 2024.
The other Bill, the Pension Funds Amendment (PFA) Bill, has been adopted by Parliament and is awaiting the President’s assent on 1 September 2024.”
COSATU said workers are highly indebted due to slow economic growth, the rising costs of living and having to support relatives in an economy battling a 41% unemployment rate. The current pension laws are excessively inflexible only allowing workers access to their pension funds upon retirement, losing their job or resignation. Consequently, many workers opt to resign to cash out their entire pension funds leaving them unemployed and with no savings left.
The Two Pot Reforms provide a progressive compromise and fair balance where workers will have access to a portion of their pension funds whilst remaining employed. This will allow workers to access 10% up to R30 000 of their existing savings when the law comes into effect on 1 September 2024 and from then on once a year, access to a third of future savings. Workers will retain access to existing savings. These will enable workers to remain employed, receive the equivalent of a thirteenth cheque on 1 September and once a year going forward and have more savings when they retire.
President Ramaphosa said: “While we are continuing the task of growing our economy to create more opportunities for all South Africans and reduce the financial vulnerability affecting many individuals and households, the new retirement system offers protection and dignity to those who need it the most to overcome financial stress.”– SAnews.gov.za
