National Treasury issued a statement earlier this month noting that government and other stakeholders are exploring a ‘two-bucket’ system which would allow retirement and provident fund members early access to a portion of their savings in times of a financial emergency.

The new proposed system makes provision for members to preserve savings until retirement for longer-term financial security, this means that members must preserve their contributions and the compounded growth invested and not have access to this portion until they retire.

The second aspect allows for short-term financial relief which would allow members to access their fund value for emergencies even while they are still employed and are still contributing members of a fund (pre-retirement withdrawal).

The proposal comes with the occurrence of the COVID-19 pandemic and recognises that many members of funds were faced with difficult financial situations. While the changes have largely been welcomed, analysts have warned that the current system will require significant changes to existing legislation as well as an in-depth public consultation process. The current legislation for Pension and Provident funds do not allow for short term emergency withdrawals.

The proposed changes do not apply to early withdrawal from retirement annuity policies and the Government Employee Pension Fund.

Members are urged not to contact their retirement or provident funds to withdraw funds until this pre-retirement withdrawal law is enacted. Much clarification and consultation is also needed with the National Treasury on how the ‘two-bucket’ system will work. It is envisaged that any change to legislation will only be effected from 2022 at the earliest. Fund members may however contact their retirement or provident fund administrator for queries on retiring, resigning or retrenchment. 

Vishane Pramrajh | Employee Benefits Manager