Zwelinzima Vavi lambasts rules of two-pot retirement system

General Secretary of the South African Federation of Trade Unions (SAFTU), Zwelinzima Vavi, says his organisation rejects the rules of the second pot of the two-pot retirement system.

“The two-pot reform could have been progressive if it were not for the rules applicable to the second pot, which require workers to access it only at the retirement age. This means a worker who is dismissed, retrenched or who resigns, will not access their pensions in lump sum until they become of retirement age,” Vavi said on X.

The implementation date for the two-pot retirement system in South Africa is 1 September 2024. All retirement contributions after this date will be split, with one third of contributions going to a savings pot and two thirds to a retirement pot.

Treasury had previously stated that the implementation of this system will allow South Africans to access a portion of their retirement savings for emergency purposes.

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Vavi noted that the working class face financial hardships and emergencies before reaching retirement age. Hence, the ability to access a portion of their pension savings can provide much-needed relief.

This, he underscored, can help individuals to address their immediate financial needs, such as medical expenses, education costs, or debt repayment, without jeopardising their long-term financial security.

However, the SAFTU General Secretary lambasted the rules of the retirement pot as this portion is locked until members reach their retirement age.

Upon retirement, the funds in the retirement pot will be disbursed in the form of an annuity. This can include a living annuity, which allows for the reinvestment of retirement savings to provide a continuous income stream during the retirement years.

“The rules applicable to the second pot, which we are rejecting, dilute the much-needed pension reform that enables workers to access a portion of their pensions before retirement. For some time now, workers in both public and private sectors have called for access to a portion of their pensions before retirement.

“This is because financial need and distress had pushed workers into debt, and consequently, early retirement as a mechanism to cash in on their pension lump sum for relief. Particularly, this was the case in the public service, where teachers would resign only to start looking for employment after 3 – 6 months of cashing their pensions,” said Vavi.

The former general secretary of the Congress of South African Trade Unions (Cosatu) is adamant that the two-pot system is not the kind of reform that the workers were asking for. He believes that workers’ access to a portion of their pensions was to relieve themselves of financial distress without having to resign.