The Congress of South African Trade Unions (Cosatu) says the amount of accumulated savings that retirement fund members will be able to transfer into their savings component should be higher.
National Treasury is proposing that members can transfer to their savings component up to 10% of the benefit they have accumulated by 29 February 2024, but this will amount will be capped at R25 000.
The proposal is contained in the latest revisions to the draft amendments required to implement the two-pot system, which is scheduled to take effect on 1 March 2024.
Read: This is how much you will be able to transfer to your savings pot on 1 March 2024
Allowing members to “seed” their savings component will make funds available for withdrawal immediately when the two-pot system takes effect. The money will be transferred from a member’s vested component, which is the savings accumulated up until the two-pot system is implemented.
In a statement issued this week, Cosatu said the draft legislation’s provisions relating to withdrawals, preservation, and vesting rights were positive and in line with most of the demands that the labour federation tabled with Treasury.
But some areas needed further “engagements and refinements”, including the 10%/R25 000 cap on seeding the savings component. “Ideally, this should be raised to 30% or R50 000, for example, to make it more substantive,” Cosatu said.
The original two-pot draft legislation did not allow members to seed their savings component.
In submissions on the draft amendments last year, Cosatu said over-indebted workers needed to have savings available to withdraw immediately the two-pot system came into effect.
Treasury announced the concession on seeding during a hearing of the National Assembly’s Standing Committee on Finance (Scof) in September 2022.
Read: Treasury agrees to three of Cosatu’s responses to the proposed two-pot system
Access to the retirement pot on retrenchment and dismissal
A higher seeding cap is not the only issue Cosatu wants to raise with Treasury. It said workers who are dismissed, not only those who are retrenched, should have access to their retirement component. In terms of the latest draft amendments, the retirement component becomes available only at retirement, when it must be used to buy an annuity.
In a media release accompanying the draft legislation, Treasury said amendments dealing with withdrawals from the retirement component if a member is retrenched and has no alternative source of income will be considered in the second phase of the implementation of the two-pot system.
At the Scof hearing last year, Treasury proposed that members who are retrenched (not dismissed) be allowed to make limited income-based withdrawals from their retirement component. These withdrawals would have conditions attached:
- Members must have depleted all their savings in their savings and vested components;
- Members must have exhausted their Unemployment Insurance Fund benefits;
- Members will have to prove they have no other source of income; and
- Instead of withdrawing a lump sum, members will receive an annuity for a limited period, perhaps up to a year.
Proposals along these lines were not included in the latest draft amendments.
Cosatu’s statement also repeated the call it made during last year’s hearing for members to be able to access their retirement component because of “forced resignation”. By this it means members who resign to take care of a seriously ill relative or to relocate to a different province because a spouse has found work there.
Cosatu said “further thought” would be required on the practicalities of this proposal.
‘Stick to the March 2024 deadline’
Despite these reservations, Cosatu welcomed the draft legislation, which it said was “progressive”.
It said the amendments will provide immediate relief to millions of struggling workers in the public and private sectors.
They will also provide workers with a better alternative to resignation when they are drowning in debt or confronted with a financial emergency and need to access part of their retirement savings, Cosatu said.
Knowing they can access their savings component once a year will incentivise workers to save more, which will boost savings and provide workers with a large pool of funds when they retire and thus be less dependent on others, it said.
Cosatu said it was critical that the 1 March 2024 implementation date is adhered to because workers are struggling and have been looking forward to this relief. It will continue to work with Treasury, Parliament, and the Presidency to ensure that this is the case.
