National Treasury has published a paper, ‘Encouraging South African households to save more for retirement’, for public comment following the November 2021 announcement by the Minister of Finance of a proposal to boost household savings. The proposal seeks to increase preservation before retirement and increase flexibility through partial access to retirement funds through a “two-pot” system.

National Treasury Proposal Summary

The Current Situation

Any reform should strive to find the right balance in promoting preservation but allowing for some flexibility that works in members’ long-term interests. National Treasury is seeking greater accessibilityand flexibility, thereby encouraging more savings into retirement funds. National Treasury welcomes comments on how vested rights can be protected.

By vesting members’ rights in respect of their accumulated savings, this should reduce the need for any employees to resign before the amendments become effective, because they would still be able to withdraw their retirement interest that was available at the implementation date. There would be no vested rights for individuals joining a retirement fund after the implementation date.

Breakdown of the Two Pot System

The accessible portion would be available at any time (but can only be withdrawn once a year, depending on a fund’s ability to effect withdrawals and subject to a minimum value, say R2,000). Potential for a second withdrawal which could be allowed within the year for any remaining amount if the individual made a partial withdrawal. This would reduce the desire to take the full value on the first withdrawal but would increase administrative complexity. The withdrawing member would have to incur the cost of a withdrawal. A withdrawing member would have to update their member details with the fund and whatever details would be necessary to affect a withdrawal.

A member may also be required to undergo retirement benefit counselling before a withdrawal is undertaken. A withdrawal from a retirement fund reduces the savings for retirement for a member, and they should be encouraged to increase their future retirement savings to replace what is being withdrawn.

With the restriction that two-thirds of contributions go into a pot that must be held until retirement, a much larger amount should be preserved in the retirement system compared to the current situation. This should increase the amount of assets available for the individual when they retire and increase replacement rates in retirement.

Impact on Various Types of Funds

Preservation Funds

Do not receive contributions, but will also be required to implement the two-pot system.

Vested rights would apply to amounts transferred into a preservation fund before the implementation date.

Retirement Annuity Funds

To allow for a simpler and more harmonized retirement fund system going forward, it is proposed that retirement annuity funds be included in the two-pot system.

Other funds

Define Benefit (DB) Funds and Public Sector Funds: It is proposed that all DB funds (including the GEPF) and public sector funds be included in the two-pot system.

Frequently Asked Questions