Cosatu pushes for major two-pot retirement reforms as Treasury stands firm

A year after the implementation of the two-pot retirement system, as lawmakers iron out technical issues so that laws line up, trade federation Cosatu is suggesting several major changes to help workers in financial distress.

While National Treasury is willing to consider some of Cosatu’s proposals, it's made clear it won't compromise on the system's fundamental purpose: ensuring South Africans have enough money to retire on.

The tug-of-war played out during a recent report back by the Select Committee on Finance on the Revenue Laws Amendment Bill for 2025, with the first iteration of this law having passed in 2023 to provide the legal framework under which the Two-Pot retirement system could come into effect.

The Bill itself is fairly dry stuff – technical changes to align the Income Tax Act with the new retirement system. But the written representations from trade union federation Cosatu revealed a much bigger conversation about what workers should be allowed to do with their retirement savings.

Since the two-pot system launched in September 2024, it's already made waves. Your retirement contributions are now split into a savings pot you can dip into before retirement, and a larger retirement pot that stays locked away until you stop working.

According to the Reserve Bank of South Africa, the reforms have even boosted tax revenue. And the South African Revenue Service indicated that, as of the start of this year, R43.42 billion after tax had been paid out under the new regime to 2.4 million South Africans.

This figure, some reports indicate, has grown to R57 billion paid out to as many as four million people. For context, there were around seven million South Africans contributing to retirement savings as of 2022.

To withdraw cash – a minimum of R2,000 and only once a year – people need tax clearance from the revenue service, and any outstanding tax needs to be settled. 

But Cosatu says the system doesn't go far enough to help people when they really need it.

Top of the union's wish list is allowing workers to access their larger “preservation pot” and not just their smaller savings pot if they lose their jobs. This would restore what Cosatu calls a crucial safety net that existed under the old system's “vested rights”.

National Treasury says it’s willing to talk about letting people access their retirement savings in cases of severe financial distress, but it would need to go through a full legislative process with public consultation and Parliamentary approval. 

The federation is also pushing for workers to be able to move more money from their old "vested pot" (savings built up before September 2024) into their new accessible savings pot. 

Cosatu describes the once-off R30 000 seeding amount as a pittance for workers drowning in debt. When the system launched, up to 10% of your existing savings, capped at R30 000, was transferred into your new savings pot as seed funding and, from now on, a third is paid into the saving pot.

National Treasury says it will consider future refinements through proper policy channels with public consultation. However, officials warn that this could trigger another massive wave of withdrawals as people shift money across and then take it out. Yet, it would still preserve more for retirement than giving what the situation would be if full access were granted.

Then there's the tax question. Cosatu wants the National Treasury to scrap tax on withdrawals for low-income workers earning below the tax threshold, arguing the system shouldn't punish the most vulnerable.

Treasury pushed back, pointing out that 6.5 million low-income earners making less than R95 750 a year already don't pay tax on withdrawals because of their income status. When you withdraw from your savings pot, it's added to your taxable income and taxed at your marginal rate – but if you're below the threshold, you pay nothing anyway.

Cosatu's final pitch was letting workers use their pensions as collateral for education loans, similar to how they can for home loans.

National Treasury indicated it won’t allow this at all, saying that the Pension Funds Act already allows retirement funds to be used as collateral for buying property like houses. And besides, the savings pot exists precisely for emergencies and unexpected expenses like education fees, its response reads.

Under the Pension Funds Act, your retirement fund savings can be used as collateral for a housing loan under specific circumstances, such as a pension-backed home loan or a housing loan for pension fund members, as provided for in the fund's rules.

This requires a formal agreement between the fund, the employer, and the financial institution, such as a bank. The fund's board may also provide a guarantee or a deposit as collateral, and under the Act, may deduct amounts from the member's benefit to cover the loan.

The Committee urged National Treasury to consider Cosatu's proposals once all the technical two-pot implementation changes are sorted.

But it echoed Treasury's caution: any changes must be carefully considered without undermining the actual purpose of pension funds, which is making sure there's enough money for your retirement.

It's a delicate balance – helping people through tough times today without leaving them with nothing tomorrow.

PERSONAL FINANCE