Workers are elated as they are on the verge of getting access to a portion of their retirement funds. Their joy comes as the two-pot retirement system will come into effect at the beginning of September.
The primary aim of the two-pot system, according to the National Treasury, is to improve SA’s retirement outcomes for members at retirement through the preservation of a larger portion of the retirement savings.
At the same time the reform allows some measured access in cases of financial distress without a member having to resign from employment.
“Workers are excited that five years after Cosatu first proposed the two-pot system, it will finally come into effect on 1 September, and they will be able to access 10% of savings in their retirement funds up to R30 000 without having to resign from their jobs to cash out their pensions,” said Cosatu acting spokesperson Matthew Parks during an interview with Sunday World.
However, Parks asserted that the heavy tax and limit imposed on the withdrawal was a cause for concern.
“Admittedly, some workers are not happy that they will have to pay tax if they choose to withdraw the 10% and can only withdraw up to a maximum of R30 000.
“But we explain to them that unfortunately tax is a part of life; and that Cosatu had wanted the maximum withdrawal to be set at R50 000 but since we were in negotiations with the government and the retirement industry, we settled on R30 000,” said Parks.
He heaped praise on pension fund administrators, saying the industry had been doing its best to communicate to workers the upcoming changes.
An individual can withdraw once per government financial year and the withdrawal tax rate will be aligned to their income tax bracket. Those who are 55 years old and above can decide whether they want to opt into the two-pot system or not.
Independent economist Mandla Maleka said the two-pot system could result in fewer people being able to afford to retire when they reach pension age.
“The biggest threat to the retirement system is whether the country could improve its retirement affordability from the current 5% who retire financially sound. Common sense tells me that if you are allowed to access your retirement funds regularly, you are likely to retire poor.”
He opined that the two-pot system was a wrong response to the high cost of living experienced by households. He said the country should rather focus on strengthening the rand.
“Households are facing astronomical increases in basic goods and services. Consumers need protection like zero-rating most goods and services. Domestic high prices have largely been [influenced by] external factors, chiefly among those, is the depreciation of the currency.
“An important role of the South African Reserve Bank, constitutionally so, is to protect the external value of the rand. So, my thinking is that I do not support the two-pot system.”
Maleka said though it was still early to imagine the impact of the two-pot system, expenditure could rise, thereby boosting household expenditure and benefit consumer-fuelled growth.
“At the same time, future potential income could be reduced thus defeating the very intention of the two-pot system. Any individual who is spending [their investment] becomes a burden to government social services.”
