President Cyril Ramaphosa. Picture: Siyabulela Duda
President Cyril Ramaphosa has signed into law the Revenue Laws Amendment Bill of 2023, which makes the two-pot retirement system official.
This comes after the official announcement by Finance Minister Enoch Godongwana earlier this year that the national government would be enacting changes to the Pension Funds Act from September 1.
Godongwana commented that the changes would incorporate a “two-pot” retirement system which would allow the South African working class who contribute to the pension fund to withdraw part of their pension contributions when in need without having to resign or cash out their entire pension fund.
He clarified that the “two-pot” retirement system would be split into classifications – the savings and retirement components – for contributions made after September 1, of which one third of contributions would be siphoned into the savings component, while two-thirds of contributions would be allocated to the retirement component.
From the two-pot system, members of the public who contribute to the pension fund will from September 1, 2024, be able to withdraw from the savings component part of their two “pots”.
The two-pot system will allow for withdrawals of minimum R2 000 once a year, and while there will be no limit to the maximum amount South Africans can withdraw, any funds withdrawn will be subject to tax and administration fee charges.
Members of the public will, however, not have access to any funds in their retirement component part of their two-pot system.
Godongwana said this will allow the government to ensure the contributions to the pension fund will be preserved, while the financial needs of the people will be met by allowing them to access some of their retirement funds.
Commenting on the initiative, spokesperson for President Cyril Ramaphosa, Vincent Mangwenya, echoed Godongwana’s remarks, stating that the initiative launched post the Covid19 pandemic was set to provide latitude for fund members to access their retirement savings for emergencies or big purchases.
Mangwenya said: “The reform introduced by the legislation strives to strike a balance between long-term security and immediate needs, recognising life’s unpredictability. It permits fund members to access a portion of their savings during crises, such as those seen during Covid-19.”
He said while traditional retirement systems primarily focus on long-term savings, they often lack the adaptability to address immediate financial crises.
“Meanwhile, these changes ensure that the retirement system remains responsive to diverse financial needs, supporting both long-term financial security and immediate assistance during emergencies,” he said.
Ramaphosa also commented on the directive by the national government, saying that the government was continuing the task of growing the economy to create more opportunities for all South Africans.
“To reduce the financial vulnerability affecting many individuals and households, the new retirement system offers protection and dignity to those who need it the most to overcome financial stress,” Ramaphosa said.
nomalanga.tshuma@inl.co.za