Tragically, South Africa’s new retirement system has turned into quite a windfall for the government as millions have dipped into their “savings pot”, triggering taxes of R11bn in the process. Now, National Treasury is looking to extend access, under certain circumstances, to even the previously untouchable “retirement pot”.
The two-pot retirement system, from the outset, was a compromise between emergency needs and long-term provision. A balancing act that hopefully would tilt in the direction of South Africans being financially better prepared for the time when they can no longer earn a living.
In many cases, retirement funds are the only savings that the full-time employed have, and under the previous system some members resigned to access their retirement fund savings to pay off debt. This, Treasury said in its motivation for the new regime, is detrimental from an economic, financial planning and retirement provision point of view. So the savings pot is supposed to be an option, an emergency outlet.
Unfortunately, many are so cash-strapped that they will withdraw whatever they can get access to. That is why Treasury has raked in more than double what it expected from these withdrawals – a whopping R11bn – in the six short months since the start of the system, according to figures released in Wednesday’s Budget Review.
More than 2.6-million people requested funds from their savings pot and some 2-million were granted access, statistics released by the South African Revenue Service (Sars) revealed last month. Withdrawals totalled more than R40bn.
Those savings were built up with the aid of tax incentives and so, quite predictably, Sars takes its cut when you withdraw funds, which in any case is limited to once a year and a third of the contributions.
Just page through any retirement fund’s website and you’ll see the cautions printed like health warnings on cigarette packets: beware the risk of depleting your savings before retirement!
Lifting the lid
Now Treasury is investigating how to take it even further.
In Wednesday’s budget speech that never was, finance minister Enoch Godongwana would have said the following: “For pension reforms, the National Treasury will continue engaging in [the National Economic Development and Labour Council] on the two-pot pension system, to investigate whether provisions can be made for workers losing their jobs to access funds from the retirement pot.”
This would be aimed at individuals who had been retrenched and were in financial distress.
Strict conditions would apply to this access, Treasury wrote in the Budget Review.
“They may include proof that the individual has no alternative source of income after a period of time, such as payments from the Unemployment Insurance Fund, and limiting access to a percentage of income rather than a cash lump sum,” it added.
For now, Treasury is still conducting studies and will only engage stakeholders, including labour and industry, once it has completed the research.
But any decent braaier will tell you that when you make a potjie, you shouldn’t open the lid too often as you’ll lose heat, and the contents – whether it’s lamb neck or waterblommetjiebredie or even a malva pudding – won’t turn out the way you wanted. And who wants a half-baked meal? Or a half-baked retirement for that matter.
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