If the COVID-19 pandemic is anything to go by, then it is extremely important to have some money set aside for a rainy day. To succeed in this, one needs to cultivate a high level of discipline, and consistency and exploit smart and creative strategies to increase your savings. But what if you cannot access your savings?
This is an issue that is currently faced by thousands of South Africans who have been setting aside hard-earned money in retirement schemes. Fortunately, there appears to be light at the end of the tunnel with a newly proposed bill.
In this article, we look at the latest changes in the South African Pension Fund Rules.
The Proposed South African Pension Fund Rules
Currently, South African Law does not allow pension scheme members to access their savings until they are either:
- Terminated or Retrenched
- At retirement age
Unlike Kenyan counterparts who can access their retirement savings to secure loans and even mortgages, South Africans must look for other forms of income or ways to access similar services.
However, a new proposal is likely to change all that. The National Treasury has put forward a proposal that will allow pension members to access a limited amount of their savings under certain conditions. This will be able to cushion them in emergency situations such as the COVID-19 pandemic which saw thousands lose their jobs.
The Treasury’s Head of Tax and Financial Sector, Ismail Momoniat describes the proposed changes as a two bucket system:
Bucket 1: Provides long-term security. Pension members will be required to preserve their contributions and the compounded growth will be invested. Access to these funds is denied until a member reaches the age of retirement
Bucket 2: Provides financial relief. Pension members will get access to a portion of these funds and the rest will continue to be saved up for retirement.
It is proposed that only 10% or 1/3 of the savings will be accessible.
In addition to this, there is a proposal that it will be mandatory for any employed person, be it on a wage-basis or on a contract basis i.e. Uber drivers, to set aside money as part of a system of auto-enrolment. This is an initiative on the side of the government to encourage people to save more.
Uncertainty of the Proposed South African Pension Fund Rules
As with any new changes, this proposed bill comes with some concerns:
- Retirement savings used as a security for loans will result in indebtedness of new members
- It will be difficult to supervise what they money will be used for
- Potential abuse of loans
The Bill is set to be outlined for comment in the October Medium-Term Budget Policy Statement.
To Wrap It Up
Only 49% of South Africans who took part in a survey actively save for their retirement. The new proposed changes are likely to encourage more South Africans to be financially secure by saving up for their retirement through pension schemes.