South African lawmakers decided to allow savers early access to their pension funds from next year, a measure that the nation’s biggest insurer expects to lead to a deluge of withdrawals.
Parliament’s standing committee on finance agreed to introduce a so-called two-pot pension system from March 1, committee Chairman Joseph Maswanganyi said in Cape Town on Tuesday.
It will allow individuals to contribute one-third of their savings into an account that can be accessible at any time, while two-thirds must only become available at retirement.
“It is the decision of the committee that we proceed with the date of March 1, 2024,” Maswanganyi said. “The modalities will be left up to the minister and the department, South African Revenue Service and other entities, on how they approach the pension fund administrators.”
The pension reforms have been on the agenda for almost a decade but gained momentum after the coronavirus pandemic upended the economy and pushed the unemployment rate to a record high.
That led to mounting calls on the government to make retirement provisions more readily accessible.
South Africa had R3.34 trillion ($181 billion) of retirement assets at the end of September, according to data from the Association for Savings and Investment South Africa.
The National Treasury and the retirement industry had sought to delay implementation of the law until 2025 to enable the state revenue agency and pension industry to put relevant systems in place.
Old Mutual, South Africa’s biggest insurer by assets, said in September it’s bracing for a flood of requests by clients to access their savings by upgrading its IT systems.
The bill will now go before the National Council of Provinces for concurrence before being presented for presidential assent. It will only become law once all the steps are complete.
Ninety One, South Africa’s biggest privately owned fund manager, warned last week that the introduction of the two-pot system carries risks.
Chile allowed a series of early pension withdrawals in the wake of the Covid-19 pandemic, but since then, individuals have been unable to build back their savings, leaving them funding consumption at the expense of their retirement, CEO Hendrik du Toit said on 15 November.
“The two pots system is there to help people in times of need, so I do understand that, and the complexities of implementation though are very substantial, but it’s very dangerous,” he said.
“We should think about creating an economy which allows people to retire with dignity, which means they should have productive jobs, earn enough, and save enough.
Only 6% of South Africans can afford to retire comfortably, which is defined as receiving a pension of at least 75% of their final salary, according to South African-based money manager Momentum Investments, which manages more than R608 billion of assets.
South Africa’s savings rate dropped to 17.3% of gross domestic product by 2022, from 19% in 2021, as high inflation pushed costs, while a constrained economic environment impaired earnings.
South Africa trails its global peers, which have a savings rate of as much as 28% of GDP, according to data from the World Bank.