Limited pension access on the table for South Africans in severe distress

South Africans under financial pressure could eventually be allowed limited access to their retirement funds in extreme cases, as the government begins early discussions on possible reforms.

This comes as more households face mounting financial strain and look to retirement savings to make ends meet.

Early talks on limited access

National Treasury says it is only at the very beginning of considering whether people in severe financial distress should be allowed to tap into their retirement funds.

Deputy Director-General for Tax and Financial Sector Policy Christopher Axelson told Parliament that no formal proposal exists yet.

“This is really the very, very beginning,” he said.

Treasury plans to release a discussion document for public comment before any decisions are made.

Two-pot system under pressure

South Africa’s two-pot retirement system already allows limited access to a “savings pot”, while a separate “retirement pot” is preserved until retirement.

Axelson said the system was designed to stop people from cashing out their full pension when changing jobs.

“The better part of the system is that two-thirds of all your contributions are now preserved until retirement,” he said.

But growing withdrawals suggest many South Africans are already relying on early access.

In the first week of March alone, more than 140,000 claims were received, with about 84,000 already paid out.

Severe financial distress could qualify

Treasury is now considering whether people who have exhausted all other options should be allowed limited access to their retirement pot.

This would apply only in extreme situations.

“If someone has used up all of their savings… they’ve got no assets left, but they’ve still got a large amount in their retirement pot… we should allow a little bit of access for those people to get by,” Axelson said.

Possible conditions could include:

• - Proof of retrenchment
• - No income for a set period
• - Exhaustion of UIF benefits

However, Treasury warned that any changes must not undermine long-term retirement savings.

Not for everyday use

Officials stressed that retirement funds will not be opened for general use.

Access would not be allowed for starting a business, buying property, or covering routine expenses.

“It’s only in severe financial distress,” Axelson said.

Government is also concerned that some South Africans may already be treating the savings pot as a form of extra income.

“The last thing we wanted was… to use this as a thirteenth cheque,” he said.

A long road before any change

Even if reforms are approved, changes are still years away.

The process includes:

• - Public discussion document
• - Industry consultations
• - Advice to the finance minister
• - Possible budget announcement
• - Draft legislation and parliamentary approval

The earliest realistic implementation date is 2028.

Retirement outlook remains weak

The debate comes amid concerns about poor retirement readiness.

Only about 10% of South Africans believe they will be able to retire comfortably at 65.

Treasury says preserving retirement savings remains critical, even as financial pressure grows.

For more information, listen to Axelson on CapeTalk’s Afternoon Drive with John Maytham using the audio player below: