Pension Fund Amendment Bill is passed: what does this mean?

  • The Pension Fund Amendment Bill has been passed by the National Assembly and is now close to being signed into law.
  • The bill seeks to force pension funds across the country to split into three components, making it possible for people to withdraw their life savings early.
  • This is in response to the cost of living crisis facing many South Africans due to weak economic conditions.

On Thursday, the National Assembly of South Africa approved the Pension Fund Amendment Bill with no objections. The bill seeks to change the 1956 Pension Funds Act in a few ways, the most important is to introduce a savings withdrawal benefit.

According to the SABC, together with the previously passed Revenue Laws Amendment Bill, the passing of the Pension Fund bill will create a “two-pot system” for pensioners. According to the National Treasury, the bill seeks to force pension funds to implement the two-pot retirement system by 1st September 2024.

Essentially, the amendment will allow pension fund owners to be able to withdraw their savings early and was passed in the face of the current cost of living crisis facing South Africa and much of the world following the high-interest rates and inflation caused by the lingering effects of the COVID-19 pandemic and disruptions of Russia’s invasion of Ukraine.

If signed into law, from September, pension funds across the country will have to be split in three components: savings, retirement and a “vested” component. This will allow members of pension funds to withdraw or transfer their savings from the particular fund if they lose their job for example, or if they are unable to work.

“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 said in Cape Town where the National Assembly passed the bill.

However, any withdraws made to pension funds before time will be subject to tax, Masondo warned.

The bill is now moving to the National Council of Provinces for consideration. If this second house backs it, then President Cyril Ramaphosa will sign the bill into law. All political parties backed the passing of the bill by the National Assembly, but according to EWN, the DA said if the economy was better, the taxation rate on early withdrawals from pension funds could be lower.

While the EFF said that workers in the country should not have to withdraw their life savings early because of poor economic conditions.

[Image – Photo by Andre Taissin on Unsplash]


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