Government’s proposed retirement reforms will encourage individuals to receive their retirement payouts monthly and not as a once-off lump sum, the National Treasury said on Wednesday. This would ensure pension fund members were protected and could retire comfortably, spokesman Xolisa Dodo said.

“Government is proposing important measures to lower charges on the pension funds of workers, to ensure that they maximise their pensions,” Dodo said.

Currently, only about six percent of South Africans were able to maintain their lifestyle and fully replace their income when they retired.

“One of the challenges of the current system is that it makes it too easy for workers to cash out their retirement savings when they leave their employer or change jobs,” Dodo said.

One financial institution reported that 93.5 percent of its members who were paid withdrawal benefits when leaving their work opted to take the cash rather than preserve it.

Dodo explained that government was not proposing that people’s retirement savings be preserved by the government, or be used to fund government projects.

“This means that workers would be able to access fully all the money they would have saved up to the date when new law comes into effect or the new rules taking effect,” said Dodo.

“The public is further assured that once the new rules come into effect pension fund members will still be able to access a portion of their savings contributed after the implementation date of the new rules.”

The government proposal was contained in the Taxation Laws Amendment Act.

“However, this alignment between provident and pension funds will take a long time to have its effect and will not negatively affect provident fund members who are currently close to retirement,” Dodo said.

He said provident fund members would still be able to take all the retirement money they would have accumulated up to March 1, 2015 as a cash lump sum when they retired. SAPA