Cosatu, financial experts welcome Two-Pot retirement draft legislation

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The Congress of South African Trade Unions (Cosatu) has welcomed the draft legislation into the Two Pot retirement system but intends to lobby the government to increase the proposed withdrawal threshold of R25 000.

National Treasury has published the draft legislation for the Two-Pot retirement system for public comment.

How it works

The system will allow South Africans to access one-third of their retirement savings throughout their working life, with the remaining two-thirds only accessible on retirement.

The new retirement system is expected to encourage preservation while also assisting South Africans who are battling to make ends meet.

Members of retirement funds will be able to withdraw a maximum of 10% or a maximum of R25 000 from their retirement fund.

This amount will be taxed according to your income and tax marginal rate.

Cosatu says this amount is insufficient and that it should be increased to at least R50 000 to enable cash-strapped workers to deal with their financial challenges.

The labour federation is optimistic that the early withdrawal of retirement funds will assist its members who are drowning in debt and will discourage those who intend to resign in order to cash in their pension funds.

Cosatu’s Parliamentary Coordinator, Matthew Parks says, “Currently under, the law workers can access their pension funds when they retire or if they resign or retrenched or are dismissed. The problem with that is that it means workers who are drowning in debt…there’s just too much that they can’t be paid off anymore or they’ve got some sort of emergency like medical emergency. Those workers who can’t afford to manage those crises then resign to cash the entire pension fund. The problem with that is now workers are unemployed, they no longer have salaries, so they are in trouble. They also deplete their entire pension fund and that puts them into a crisis when they retire because they’ve got no pension left or not enough built up.”

Thumbs up from financial experts

The Two Pot system will be divided into a vested pot, a savings pot as well as a retirement pot.

Members of pension funds will also be able to withdraw a minimum of R2 000 per year from their savings pot.

Experts say that this will help members not to go to the extreme of resigning to cash in their pension funds.

CEO at the Financial Planning Institute, Lelane Bezuidenhout, explains, “It is, unfortunately, reality, and it really breaks my heart that you have households that get to the point where they would rather resign in the hope of finding new employment and then accessing the retirement fund, which is not great. Now if we look at the pot system and how it will contribute, you now don’t have to resign or go to those extremes.”

Experts are happy with the fact that the Two Pot system will still ensure that members preserve two-thirds of their pension funds and can only access one-third of their money to deal with their current challenges.

Kobus Hanekom, a non-executive director at Batseta, the Council of Retirement Funds of South Africa, elaborates further, “You know that one-third that compulsory contribution investment that you have to make into the future. That is there for you to be able to take should there be a life emergency and you could also take that in cash when you lose your job, you could also take that cash when you retire but as for the other two-thirds that will be invested until you retire. So even if you change jobs, even if you lose your job, there’s such a thing as we call compulsory preservation.”

Members of retirement funds are urged to not access this money unless it is absolutely necessary.

The new legislation is expected to come into effect from the 1st of March next year.