The new pension fund law will come into being in September 2024.
A lot has been written about the new two-pot system. Much of this has been commentary from economists, especially from a financial perspective.
I want to look at this from a simpler labour perspective. It is common wisdom for employees who don’t have a compulsory pension or provident fund at work to start putting money into this savings fund as soon as possible.
The earlier, the better.
Secondly, it is always recommended that individuals consistently take a certain portion of their salary every single month without fail.
Thirdly, monies are invested specifically when the individual is no longer working.
These three pieces of wisdom will be the base for everyone who has a job. Certain industries and jobs have a compulsory deduction from pension or provident funds. This compulsion makes it easier to at least adhere to the first two recommendations from above.
As everyone knows, we are not living in a perfect world and millions of individuals are unable to invest in the first place. Those who are forced to pay into the pension funds either through their employer or the bargaining councils often want to access some of those monies in cases of desperation.
The pension fund industry has been reluctant to allow people to access their pension funds whilst they are still at work.
However, the trade unions have fully understood the needs of many of their members to draw some or all of their pension fund money to pay off debt.
Salaries have not kept up with inflation and the basic minimum wage has certainly not been enough for people to support a family. In cases such as this, we are experiencing a phenomenon of resignation and or voluntary retrenchment.
I, as a labour lawyer, regularly get involved in retrenchment programmes throughout the Western Cape.
In the past, we have offered voluntary retrenchment by offering slightly more than the normal severance payment to encourage individuals to come forward and take the package if they were considering leaving in any event.
For instance, when an employer found a necessity to retrench five individuals of the 50 employed, we would send out a message to the whole staff explaining the situation and asking for volunteers. Invariably one or two came forward and it was still necessary to then conduct a retrenchment programmed to dismiss for operational requirements.
Over the past two years, this has not been the case. For instance, anecdotally, a month ago I needed 40 people to be retrenched to save a company from possible liquidation.
The normal voluntary retrenchment request was sent out to the whole staff of 300 people. We received a response from just over 70 people to take advantage of the severance payment. This phenomenon has been repeated many times in the past two years.
When I first encountered this, I spoke to a handful of individuals who explained that they did not necessarily want to leave and that they had no other job lined up.
They explained that they had taken loans from unauthorised individuals and they were unable to service that loan or pay it back. The pressure on the employees was enormous and the unauthorised individuals were certainly not forgiving in any way.
The employees said that if they accessed all their unpaid leave plus the notice pay and the severance pay coupled with the full payout of the pension fund they were able to pay off the loan and even buy some desperately needed goods.
People saw access to the pension fund as being the key to sorting out the immediate horrific pressure being brought to bear upon them. They said if they were able to access some of their pension monies without resigning, they would much rather do that.
On top of the voluntary retrenchment, they were able to then claim the unemployment insurance fund monies. When asked what they would do if they couldn’t find another job they had no answer for me.
In essence, the sad part is that once the debt has been paid and the necessary items have been bought then no further income comes into the household. This creates a much bigger problem in the long run. Jobs are scarce and almost 40% of working-age South Africans can’t find a job.
With the two-pot system as of September, working South Africans who have invested in pension funds will be able to access 10% of that money initially. Thereafter, people will then be able to access one-third of the saved amount in the pension fund.
The Pension Funds Amendment Act will then ensure that the main retirement pot, which receives two-thirds of this saved amount, is built to only be accessed on your retirement or death. This post is specifically put away for long-term retirement.
Cosatu, the trade union umbrella body, has said that this new system is a big relief to millions of workers and their families. They have acknowledged that many are drowning in debt and are now unable to cope with the rising cost of living.
Unfortunately, withdrawals from the pension fund will result in a higher tax amount being paid by the members. People should try to take advice before accessing their pension monies.
* Michael Bagraim is a veteran labour lawyer.
** The views expressed here are not necessarily those of Independent Media.
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