Retrenchment relief may be in pension reform 2.0
A second phase of retirement fund reform is envisaged by the Treasury, to allow retrenched workers access to some of their retirement funds after the planned introduction of the twopot system on September 1.
In terms of the first phase, which is in the process of being legislated, workers will have access to their retirement funds only on retirement, not before.
Treasury director of financial sector development Alvinah Thela told members of parliament’s finance committee on Tuesday that the aim of the proposed reform would allow retrenched workers (and not workers who left their jobs voluntarily) access to their retirement fund without depleting it completely.
Without this change, workers would only have access to the full amount of the vested component and savings component of the two-pot regime when retrenched but not the retirement component.
“We still need to work out how the retrenched member can access the retirement component, because you are subjecting it to preservation.
“That will be the second phase of the reform to ensure that someone who gets retrenched — not someone who resigns out of their own voluntary will — can access the retirement component without depleting the retirement savings completely,” Thela said.
A possible solution would be to allow the retrenched worker to access the retirement component in tranches or income streams rather than in a complete lump sum.
Treasury acting directorgeneral for tax and financial sector policy Chris Axelson expressed hope that the savings component would be a sufficient buffer for workers who lose their jobs.
In terms of the two-pot system, retirement funds will be split into a vested component, which will consist of all the funds accumulated before implementation on September 1; a savings component; and a retirement component.
To limit the adverse effect on liquidity, workers will be able to withdraw the lesser of 10% or R30,000 of the vested component on implementation, after which one-third of contributions will go into the savings component and two-thirds into the retirement component.
A single annual withdrawal from the savings component will be possible with the minimum amount being R2,000.
The funds contained in the vested component will be subject to the current retirement regime, including the ability to make one-off withdrawals and the ability to access pension and provident funds on resignation.
The aim of the system is to ensure preservation of retirement funds by preventing workers leaving their jobs in order to withdraw the whole amount of the fund, while also
providing them with partial access to address immediate financial needs.
These provisions are contained in the Revenue Laws Amendment Bill, which is due to be voted on by the National Assembly on February 20.
Also necessary are amendments to the Pensions Funds Act to align it with the new regime.
Thela addressed these proposed amendments at Tuesday’s meeting of the parliamentary committee, saying that the scope of the bill would have to be expanded to include minor amendments to the law governing the Government Employees Pension Fund (GEPF) and possibly other pension funds established in terms of the Post and Telecommunications Related Matters Act and the Transnet Pension Fund Act.
PUBLIC SECTOR
Thela gave the assurance the two-pot system applies to all funds, including public sector funds, all of which will have to change their rules to accommodate it. But Axelson cautioned that if the GEPF law is not changed, public sector workers would not be included in the two-pot system.
Parliamentary legal adviser Frank Jenkins said there would have to be an invitation for public participation if the scope of the bill were expanded. This could extend the time for parliament to process the bill.
While a September 1 implementation date was a compromise reached between the Treasury and the committee after a lot of to-ing and fro-ing, committee chair Joseph Maswanganyi raised the possibility that the Pension Funds Amendment Bill would not have been processed by the end of the term of the current parliament.
He suggested that could be March 28, which would mean the bill would be deferred to the next parliament.