Back in mid-December 2021, the National Treasury announced its proposals for further pension fund reforms in South Africa. It’s proposed changes will, according to the Treasury, improve savings outcomes for all South African workers. Old Mutual was the first to comment on the proposed changes, which would include:
- Invest 1/3 of retirement contributions into an accessible pot that members can access at any time.
- Invest 2/3 of retirement contributions into a retirement pot that members cannot access until retirement.
The aim is to prevent individuals from draining their pension fund savings before retirement, which negatively impacts their ability to manage their finances upon retiring. It still provides flexibility to be able to weather unforeseen events and expenses by being able to dip in to the smaller accessible pot. The new structure ensures every employee enrolled in a pension scheme will have enough money on hand to get through retirement comfortably.
The accessible pot will not act as a transactional bank account and will be limited by certain restrictions. Access is proposed to be limited to once or twice a year with withdrawal limits also proposed to be imposed. To help improve individuals financial management skills, Treasury have proposed individuals wishing to withdraw funds submit to retirement benefit counselling. Another change will be not being allowed to access the retirement pot when changing jobs but only on retirement.
The new system also aims to enrol a wider scope of employees including contract workers and self-employed individuals. The proposal recommends auto-enrolment whereby every employer must enrol their employees into pension schemes. This could be tricky to implement, however, when the employee does not have a steady stream of income to base contributions upon.
The good news is that despite these proposed changes, you maintain your vested rights. This means any money invested prior to the implementation of the above changes is subject to the same regulations as it was before. Only new contributions would be subject to the new regulations.