On 29 July, National Treasury released draft legislation around early access to pension funds and the so-called “two-pot” system.
This draft legislation aims at addressing two key challenges facing retirement savings: improving retirement outcomes by introducing mandatory preservation; and providing access to retirement funds for emergencies prior to retirement.
The amendments aim to introduce a measure of flexibility around retirement products in order to encourage people to preserve their retirement savings. By allowing access to a portion of one’s retirement savings, the idea is that people won’t be incentivised to resign from their employment just to access their retirement funds in an emergency situation.
This system would have assisted people during a crisis like the COVID-19 pandemic, when many employees faced reduced salaries or were not paid at all during the national lockdown.
The document highlights that “the proposal does not include allowing immediate access to retirement funds, but rather moves to a system that can more adequately cater for emergencies in the future but should also increase preservation to improve retirement outcomes.”
The changes will affect all forms of retirement funds including company funds, umbrella funds, retirement annuities, and the Government Employees Pension Fund.
How will the two-pot system work?
In this podcast Maya (@mayaonmoney) speaks to retirement reform expert Rowan Burger about how the two-pot system will work.
Burger is head of strategy at Momentum Investments and chairs the social security standing committee at ASISA. He is on the retirement reform task team at Nedlac and has been part of the ongoing review of the retirement reform proposals.
Burger dispels some myths around early access to retirement funds, and explains how vested rights will affect your existing retirement assets.
- Why you will not have early access to your retirement funds in March 2023
- The introduction of mandatory preservation on two-thirds of contributions
- What will happen to your existing fund benefits
- How withdrawals will be taxed
- How the two-pot system will work for GEPF members
- Whether the date of March 2023 is realistic and when we are likely to see these changes