Labour federation Cosatu is advocating for increased access to funds for workers under the “two-pot” retirement system, saying the move will help them pay off their debts more effectively.

It has submitted proposals to the government in which they request that workers should have greater access to their pension funds. Cosatu said it hoped that these proposals will be implemented later this year or next year.

The next round of withdrawals will begin at the start of the new tax year.

At least two unions and one affiliate spoke to The Mercury about the system and its benefits after its first year of operation. While their opinions differed, they all agreed that the taxes charged on withdrawals were “unexpectedly high.”

The two-pot system is a reform that enables retirement fund members to make partial withdrawals from their retirement funds before retirement while preserving a portion that can only be accessed upon retirement.

This system means that members need not resign to access part of their retirement benefit if they find themselves in financial distress. The reform came into effect on 1 September 2023 but was implemented last year.

According to literature from the National Treasury, the two-pot system is designed to support long-term retirement savings while offering flexibility to assist fund members in financial distress. In many cases, retirement funds are the only savings that members possess.

Matthew Parks, spokesperson for Cosatu, said despite billions of rand being paid out last year, reports from the credit regulator had shown that workers were still struggling with debt. He noted that workers’ wages were primarily going towards servicing debt rather than groceries and other essential items.

In terms of the system, workers can withdraw a minimum of R2 000 a year.

Parks mentioned that late last year, they made several proposals to the government for changes to be implemented in the next round of the two-pot system.

“We believe that the last round went very well; about R43 billion was paid out to around 2 million people, and most of that money went to paying debts and deductions. Overall, the situation has been positive,” he said.

Parks emphasised the need to address concerns, including the reduction of the tax on withdrawals for lower-income workers.

He argued that if a worker loses their job, they should have access to all of their savings to support their family and retain their homes, as this is a critical emergency.

“We also want a situation where workers would have access to the money they saved up until 1 September last year, allowing them to move those funds to the savings pot. There are workers with significant savings who could use that money to pay off pressing debts,” he added.

The South African Democratic Teachers Union has also expressed concerns regarding the tax on withdrawals.

“The concern raised by members was primarily about the tax. The concern was that the tax was a bit excessive, while others felt it should have been tax-free,” it said.

Basil Manuel, the executive director of the teacher union Naptosa (National Professional Teachers’ Organisation of South Africa), has warned that the system for emergency fund withdrawals cannot be a free-for-all.

Naptosa, an affiliate of the Federation of Unions of South Africa (Fedusa) said taxation was another concern.

“No one expected the taxation to be as high as it was. The minister of Finance provided us with the figures of what was withdrawn, and the total was around R40bn. Of that amount, 25% went to tax, which is close to R10bn,” he said.

THE MERCURY

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Cosatu pushes for greater access to pension funds under two-pot system