South Africans are said to have withdrawn $ 2.8 billion from the pension funds since the pension reforms took effect in September.
South African Pension Reforms
in July, South African President, Cyril Ramaphosa signed into law a bill amending the pension system in South Africa. The new bill called the Pension Funds Amendment Bill enables implementation of the new two-pot system aimed at bolstering retirement savings.
The bill requires pension funds to “amend their rules, adjust their investment portfolios, and prepare administrative systems for pension fund members to apply to access portions of their pension funds.”
The bill came into force on September 1, 2024.
Two-Pot Pension System
The two-pot pension system aims to repair the country’s weak savings, especially among people planning for retirement. The new system applies to both private and state pensions, including the country’s largest fund, the Government Employees Pension Fund (GEPF).
Under the new system, there are two components to a person’s retirement funds namely: the retirement or preservation “pot” and the savings “pot”.
Retirement/Preservation ‘Pot’
The retirement or preservation component makes up two-thirds of pension contributions. Two-thirds of what individuals save towards retirement, via a fund (not their private savings) must go into this first pot.
This is to preserve a portion of the individual’s retirement fund for retirement purposes this portion of a person’s retirement savings must be retained in this “pot” with withdrawals not allowed until retirement age.
The purpose of this is to ensure individuals will have sufficient funds to support themselves in retirement and, in turn, give the South African economy a more stable and growing pool of savings to fund economic growth and employment.
Savings ‘Pot’
The savings component, comprising one-third of contributions, allows the early withdrawal of some of a person’s retirement fund before retirement age. This gives flexibility in meeting unexpected financial needs. A minimum of R2,000 (US$110) can be withdrawn, and there is no maximum limit (subject to the size of this pot), although only one withdrawal may be made per year.
Pension Withdrawal in The Aftermath of Pension Reforms
South Africa’s tax service revealed on Tuesday that pension withdrawals in the 11 weeks since the reforms took effect allowing people to make partial withdrawals before retirement had risen to 49.6 billion rand ($2.8 billion).
This is expected to spur economic growth in the final months of 2024 and boost the government’s tax take.
