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South African lawmakers on Wednesday backed a bill reforming the country’s pension laws to allow members to withdraw as much as a third of their savings before retirement.
The Pension Funds Amendment Bill will, from September, require that funds are divided into three components or “pots,” split between savings, retirement and a vested portion. It will also allow members to transfer or withdraw savings in the event they change or lose their job. Fund members can choose if they want to opt into the new system.
“In times of dire financial distress, members of pension or provident funds tend to terminate their employment in order to access their retirement savings,” Deputy Finance Minister David Masondo told lawmakers in Cape Town.
He cautioned that the withdrawal of retirement savings would be subject to tax.
The bill, which was supported by all political parties, will now go to Parliament’s second house, the National Council of Provinces, for consideration. If they back it, the bill will proceed to President Cyril Ramaphosa to be signed into law.
The industry is preparing for the September 1 start to implement the law, Old Mutual Chief Executive Officer Iain Williamson said. However, lack of clarity on the tax treatment for withdrawals and delays in the resolution of conflict with other laws could hamper the rollout of the initiative by the deadline.
“I do think there is a risk that it’s going to be challenging on the parliamentary agenda to process everything it needs to process in time or for September,” Williamson said in an interview Wednesday.
“From an operational implementation perspective, we don’t have that clarity yet.”
