South Africa: President Cyril Ramaphosa enacts law allowing emergency to retirement funds. He has signed a law called as ‘Revenue Laws Amendment Bill of 2023’ that establishes a ‘two-pot’ system.
The two-pot system provides members of retirement funds access to the retirement savings without any need to resign or cash out entire pension funds.
As per the sources, the amendment law introduced the two-pot retirement system to address the concerns related to the lack of preservation. Before its retirement and lack of access to retirement funds by households in the financial distress.
The retirement system comprises of savings and retirement component for the contributions which will be made after September 01, 2024 in South Africa. However, the historical benefits will be housed in a vested component.
Reportedly, the individuals will have access to the amounts in the savings component before retirement for times of financial distress and the amounts in the retirement component are preserved until the retirement.
The primary objective of the two-pot retirement system, is to provide flexibility for the fund members to have access to their retirement savings during the emergencies, without making the resignation necessary for any kind of situation.
Traditionally, the retirement systems primarily focus on the long-term savings that often lacks the adaptability to address the immediate financial crises.
Considering this, President Cyril Ramaphosa said, “While we are continuing the task of growing the economy to create more opportunities for all the citizens of South African and reduce the financial vulnerability that is affecting many individuals and households”
“The new retirement system offers protection and dignity to those who need it the most to overcome the financial stress,” added the President.
Furthermore, the reform introduced by the legislation strives to strike a balance between the long-term security and the immediate necessities, while recognising the unpredictability of the life.
It does permit fund members to access a portion of their savings during the crises, such as those faced during the COVID-19 challenges.
Notably, these changes ensure the retirement system remains responsive to diverse financial needs, supporting both long-term financial security and immediate assistance during emergencies.
