The new pension laws will come into effect on the July 1, 2025. South Africa is following in the footsteps of global pension reforms that have been implemented to build long-term financial security and modernise the retirement savings system.
Introduced by the National Treasury and the Department of Social Development, the set of changes is one amongst a number of reforms being put in place to address income inequality, stimulate the level of savings in the country, and offer more flexible retirement options for workers.
The Two-Pot Retirement System Comes Into Existence
The main focus of the new rules is on the two-pot system of retirement savings. This system specifies that pensions be contributed in two parts: a savings pot and a pension pot. One-third of all future contributions will go into the savings pot, which can be accessed by the member one time for emergencies and financial hardship.
The remaining two-thirds will stay in the pension pot until such time when he or she retires. The structure was considered to allow those who really needed financial assistance during their working years whilst still securing their retirement in the long run.
Who Resides Under the Law and How it Works
The new rules are applicable to all members who are under employer retirement fund arrangements such as pension funds, provident funds, and retirement annuities.
Contributions post-June 1 are automatically split among the two pots and do not require an opt-in from the members. For existing retirement savings under the old system, only contributions starting June will be affected; the accrued funds shall remain under the old system unless a fund elects to convert.
Withdrawal from the Savings Pot
A member shall only be allowed to withdraw once per tax year from the savings pot. Such withdrawals must at least amount to R2,000 and shall be taxable.
They are intended to somewhat reduce situations where the need arises to cash out the entire pension fund. The provision is intended to provide greater financial flexibility without compromising retirement latter-day needs.
Moving Towards Financial Resilience
In a nutshell, these new pension rules are a giant step towards redefining the retirement system in South Africa. By restricting access to funds and inculcating the spirit of long-term saving within the system, the system sets out to provide short-term relief and long-term financial resilience to South African workers.