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It is critical to plan for life after retirement. In light of this, the National Treasury has issued two papers for public comment on proposed additional retirement reforms.
The two proposals aim to increase household savings by improving preservation before retirement and increasing flexibility by allowing partial access to retirement funds via a “two-pot” system.
The Treasury notes, “Government is sympathetic towards the difficulty many South Africans are currently facing due to the Covid-19 pandemic and has engaged with the regulators and other key stakeholders to work out relief measures for consumers. As a result, measures on contribution suspension and holiday, as well as expansion of access to living annuities were enabled to ease the plight of some members.”
Although retirement savings should ideally be used for retirement provision, Treasury emphasises that the Government recognises the need to allow some access to accumulated retirement savings before retirement.
“It is for this reason that the National Treasury noted, in the Budget 2021 financial sector updates, the consideration to allow limited pre‐retirement withdrawals from retirement funds under certain conditions, if this is accompanied by mandatory preservation.”
How will the proposed retirement reforms work?
The proposal under consideration in the first paper for public consultation focuses on implementing the said two-pot system. This will allow for the reorganisation of retirement contributions into two pots, as follows:
- One pot is to be kept until retirement (two-thirds).
- The second pot would allow access prior to retirement (one-third).
According to the Treasury, the Government believes that such restructuring must include the preservation of contributions to ensure adequate retirement provision and avoid old-age poverty and reliance on the state.
“Such restructuring will entail the protection of vested rights on accumulated retirement savings prior to the new two-pot 2 structure taking effect. The proposed restructuring of retirement savings into an accessible pot and a retirement pot will address the situation most members of funds find themselves in because of not having any alternative form of short-term savings.”
Furthermore, the Treasury notes that this has been exacerbated by the Covid-19 pandemic, resulting in job losses or reduced income for some workers.
Mandatory enrolment
The introduction of automatic enrolment (leading to mandatory enrolment) into the retirement system is also being considered.
“Not all employers provide a retirement benefit for their employees. Unless these employees self-enrol in a retirement annuity fund, they are left with no provision for retirement.”
The paper’s Annexure provides a brief overview of what can be done to eventually cover every working person in South Africa in some scheme for retirement or similar benefits.
To learn more about the proposed paper, click here.
The second paper aims to improve governance in retirement funds in general, focusing on commercial umbrella funds.
Key amongst these is the deviation from the norm of having 50% employee representation in a commercial umbrella fund.
To learn more about this proposal, click here.
The general public is invited to participate in discussions concerning the two proposals.
Comments on these papers are welcome until 31 January 2022 and should be sent to [email protected].
What are your thoughts on the two retirement reform proposals? Share your views in the comment section below.
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