Desperate households eye retirement savings

Many hope the finance minister will announce the next moves to unlock pension funds in his budget speech.
Many see the plan as a solution to their cash flow problems, but the proposal is referring to only 10% of savings – up to a cap of R25 000. Image: AdobeStock

Rising food and petrol prices, amid high unemployment and sluggish economic growth – together with increasing interest rates – are putting the squeeze on many people. In this scenario, many see government’s plan to restructure the pension fund industry to allow immediate access to retirement funds as a solution to their immediate cash flow problems.

If the number of queries after previous articles on the proposed ‘two-pot’ pension fund system is anything to go by, households are eager to dip into their retirement savings.

Many Moneyweb readers ask the same question: “When will I be able to access my pension fund?”

This also lends credibility to anecdotes about people who resign from their jobs for the sole reason of being able to access their pension funds. In fact, a study by National Treasury has found enough evidence of this to launch the restructuring of the pension fund industry.

Many people ignore that the new dispensation aims to force more people to save for retirement. They also ignore that the two-pot system will put the lid securely on the bigger pot until retirement age.

Cash-strapped citizens look at the proposals only as far as the part that deals with access to their pensions is concerned, and how soon this will be possible.

Green light expected

Michelle Acton, key account manager at Old Mutual Corporate, says the finance minister is under “extreme pressure” from weary consumers to deliver on the reforms almost immediately.

“It is the most anticipated [topic] of Finance Minister Enoch Godongwana’s budget speech this week,” she says.

“While it is unlikely that a roll-out plan will be detailed in the budget speech, we can expect Godongwana to give the reforms the green light and, subsequently, assurances that government would take into account the time required by industry to comply with the legislation,” says Acton.

She notes that while the industry welcomes the proposed reforms, she hopes the minister will err on the side of caution to maintain tax system stability and avoid creating unrealistic expectations for indebted consumers.


The current tax treatment of retirement savings is based on contributions being exempt from tax, while growth within the retirement vehicle is also not taxed immediately. Thus, contributing to a retirement funds has tax advantages. After retirement, pensioners are taxed when benefits are paid.

“The proposals deal quite extensively with the shortcomings of this existing tax treatment in relation to the two-pot system and suggests four alternative proposals,” says Acton.

“We would prefer if the tax system does not change as the extent of the pension fund reforms and requirement for fund administrators are already substantial.

“Currently, the tax implications around retirement funding are well established and understood. It would be wise not to add another layer of complexity, but instead maintain the current stability and integrity.”

Don’t expect a quick fix …

Acton says it is also important that Godongwana makes pension fund members aware that if the two-pot system is given the green light, it will still take some time to get the required legislation passed, and the current administration systems updated to allow for this new system.

The changes to the Pension Fund Act will be a lengthy process. Only the first few steps are in process. Government only called for public comment on the proposals at the beginning of the year, with actual changes to legislation to follow only after consultation.

Once the new legislation is ready, it needs to follow the parliamentary process, and probably more public and industry input. Once passed into law, authorities will give industry a few months to implement changes.

It is likely to take months, rather than weeks.

“We know that many consumers are experiencing financial distress and are looking forward to accessing a small portion of their pension savings for relief. We support granting consumers early access to a part of their retirement funds, as an element of the new two-pot system and we are committed to making this happen with a measured approach that does not jeopardise their retirement savings outcomes,” says Acton.

Read: Help, I don’t have enough money to retire

… or a huge sum

She emphasises that while many will be hoping to access a substantial portion of their retirement savings, realistically that access will be conservative.

“The proposal is referring to 10% of accumulated savings up to a cap of R25 000,” she says.

“The amount of money that members are allowed to access must take into account the stability and liquidity requirements of funds and the markets.”

Acton notes that since the release of the draft proposals in December, industry stakeholders have put considerable effort into assessing the proposed reforms and putting constructive thought into their responses to National Treasury, which could ensure the transition can be effected efficiently and effectively.

“Across the industry there have been a considerable number of fruitful engagements, and every stakeholder is committed to making these reforms work in the best interest of South Africans.

“Old Mutual supports, wholeheartedly, National Treasury’s view that the introduction of preservation of contributions is necessary to ensure sufficient retirement provision to avoid old-age poverty and to end reliance on the state,” says Acton.

Expanding the system

Treasury said in its announcement outlining the proposals that it will introduce legislation to enable automatic or mandatory enrolment to retirement funds to expand the system to include more employees, such as contract and temporary workers.

The paper calling for public input specifically referred to domestics workers and Uber drivers.

“Whilst workers that are formally employed and belonging to a labour union tend to be covered under the current dispensation, this is not the case with workers not belonging to any labour union, nor those in the gig economy,” noted the paper.

Treasury also called for further consolidation of the retirement fund sector into a smaller number of large retirement funds which could bring cost advantages to funds and their members.

It noted that part of the reform is to allow a “limited level of immediate access” under specific conditions (for those negatively impacted by the Covid-19 pandemic and similar emergencies).

“The proposed restructuring of retirement savings aims to address the situation where many members of funds find themselves cash strapped (because of not having any alternative or sufficient forms of short-term savings) and then they resign from their jobs to access their retirement savings,” according to the Treasury report.

Listen to Simon Brown’s interview with Blessing Utete from Old Mutual Corporate in this MoneywebNOW podcast (or read the transcript here):



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South African GDP per capita has crashed by 38% over the last decade according to data from the World Bank. Every individual has lost almost 40% of his dollar-based income potential. The rising cost of various administered prices, which are under the full control of the central planners in Luthuli House, force savers to use their capital for cash flow.

This is just the logical consequence of the socialist policies of redistribution of capital. It forces people, who pay taxes to support the social grant, to use their own retirement savings to support themselves.

End of comments.




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