By Solly Phetoe
THE Two Pot Pension Reforms will be one of the most important legislative reforms since 1994 and will provide badly needed relief to millions of struggling workers.
The Congress of South African Trade Unions (Cosatu) and its affiliate, the Southern African Clothing and Textile Workers’ Union (SACTWU), first proposed allowing workers who had not been paid during the Covid-19 pandemic early access to their pension funds so they could feed their families and avoid resigning from their jobs to cash out their pension.
While Covid-19 is no longer a challenge, workers are still struggling with high levels of debt. Many workers have seen their wages cut or have received below-inflation increases.
Inflation hits workers the hardest, not only because they earn the least, but the goods they need to buy experience inflation at levels far above the consumer price index (CPI) – for example, electricity, transport and food.
It’s important to bear in mind that in a society with a 41% unemployment rate and a 59% youth unemployment rate, most workers support seven relatives on average.
The reports on consumer indebtedness show a worrying trajectory with debt levels rising.
These have been exacerbated by the 475 basis points hikes to the repo rate over the past two years.
The pressures facing workers and their families are daunting.
Current pension laws are inflexible and offer workers few choices. Workers can only access their pension funds when they retire, are retrenched, dismissed or if they resign from work.
Many workers drowning in debt or overwhelmed by personal emergencies resign from their jobs and cash out their entire pension funds.
This provides momentary relief as workers settle debts. However, it soon creates crises with these workers now unemployed and, with a 41% unemployment rate, they struggle to find jobs.
It also means these workers have depleted their pension funds and, when they find work, they must start saving again.
The normal career path sees the average worker having half-a-dozen jobs over their lifetime. Most cash out their entire pension funds repeatedly. The result is only 6% of South Africans can afford to retire.
In short, workers are bleeding, the system is outdated and it needs to be reformed.
There is justification in requiring everyone to save a portion of their salaries for retirement so they can retire in comfort, but it is equally important to remember that pension funds belong to workers.
When workers are in a crisis, they need to be allowed some relief from their savings to take care of their families.
The challenge is to find a fair and sustainable balance between savings and survival during emergencies. The Two Pot Reforms lay the foundation for that long-sought balance.
For the first time, workers will have choices that provide the flexibility their individual circumstances require.
The Two Pot Pension reforms initiated by Cosatu and SACTWU will provide badly needed relief to millions of highly indebted workers, in both the private and public sectors, who will be able to access limited portions of their pensions without having to resign from their jobs or cash out their entire funds.
These engagements have been taking place since Cosatu first tabled them in 2020. We now have legislation before Parliament providing for these reforms.
Workers will have access to their pension funds in three ways.
The first is that they will retain access to the savings accumulated when the new laws come into effect through retirement, job loss or resignation under vested rights. So if a worker decides one day that they have enough funds saved up and would like to open a small business, they can do so.
The second is that when the laws come into effect on September 1, 2024, workers can withdraw 10% up to R30 000 from their existing savings. This is a once-off immediate relief to help workers pay urgent debts or bills.
The third is that workers will have access to a third of their future savings. When the law comes into effect, future savings will be divided into two pots.
Two-thirds of savings will go into a preservation pot that workers will be able to access when they retire or if they are retrenched.
One-third will go into a savings pot that workers can access once a year if they want.
These reforms offer workers greater control over their savings and choices. Workers don’t need to resign out of desperation as there will be funds they can access if needed.
Workers can continue working while getting relief. They won’t need to cash out a pension fund of R500 000 to settle a debt of R100 000.
If workers opt not to tap into the immediate relief on September 1, they can access that at a later date. If they choose not to access their savings pot for several years, again they can tap into them on a later date of their choice.
While these amounts will not be enough to settle home or car loans, they will be the equivalent of a 13th cheque and help settle expensive short-term or credit card debt or other urgent bills.
Over time these 13th cheque equivalents will help heal workers’ financial wounds.
These reforms will boost savings in the longer term as workers will no longer be resigning to cash out entire pension funds but will rather access their savings pot.
This is one of the biggest reforms of our pension laws in years. It is a matter that has captured the attention of millions of workers who have eagerly anticipated this relief since discussions began in 2020.
Workers have been frustrated by the delays, but we are getting there. We have legislation before Parliament. We have consensus between the Treasury, Parliament, Cosatu and the pension funds on the Two Pot Reforms. What is needed now is implementation.
Parliament passed the Revenue Laws Amendment Bill and will soon pass the Pension Fund Amendment (PFA) Bill.
While we are disappointed that it has taken us this long to get here, the progress made and support from Parliament, in particular MPs from the ANC, have provided hope to millions of workers.
We are confident the Two Pot Pension Reforms will become reality on September 1, 2024.
Once Parliament has passed the PFA Bill, the president will need to assent to these bills, the SA Revenue Service to adjust its tax systems and pension funds to amend their rules and put in place the necessary systems to ensure a smooth implementation on September 1.
Cosatu will be working closely with them to ensure that this happens.
Solly Phetoe is the general secretary of Cosatu.
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