The National Treasury has published two papers on proposed retirement reforms for South Africa for public comment.

The proposals aim to boost household savings by increasing preservation before retirement and increasing flexibility through partial access to retirement funds through a ‘two-pot system’.

“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,” Treasury said.

“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.”

Even though retirement savings should preferably only be used for their intended reason, namely retirement provision, Treasury said that it recognises that there might be a need to allow some access to accumulated retirement savings before retirement.

How it will work

The proposal currently being considered through the first paper released for public consultation is the introduction of a two-pot system. This will enable the restructuring of retirement contributions into two pots:

  • One pot is to be preserved until retirement (two-thirds);
  • The second pot would enable pre-retirement access (one-third).

“Government is of the view that preservation of contributions must accompany such restructuring to ensure sufficient retirement provision and avoid old-age poverty as well as reliance on the state. Such restructuring will entail the protection of vested rights on accumulated retirement savings prior to the new two-pot structure taking effect,” Treasury said.

Mandatory enrollment

Treasury said 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.

“This has been exacerbated by the Covid-19 pandemic, resulting in some workers experiencing loss or reduced incomes. Consideration is also being given to introducing automatic enrolment -leading to mandatory enrolment – into the retirement system,” it said.

“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 second paper out for comment seeks to improve governance in retirement funds in general, but particularly for commercial umbrella funds. Key amongst these is the deviation from the norm of having 50% employee representation in a commercial umbrella fund.

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