Mohamed Raees Hussain | Attorney: Conveyancing Division
Historically, access to one’s pension or provident fund was only possible when leaving an employer (subject to limits) or on retirement. There have been several changes to retirement savings with the most recent being to the treatment of provident funds which as of 1st March 2021, will operate in the same manner as a pension fund and restrict withdrawals on retirement.
However, the most recent albeit proposed changes which are yet to be promulgated into law will allow early access to a portion of one’s savings. The qualifying criteria is yet to be determined; however, it will include times of financial emergencies similar to the Covid-19 Pandemic.
A “two bucket” system has been proposed by the Government:
- Long term (first bucket) – preservation and growth, only accessible on retirement.
- Short term (second bucket) – access allowed in emergencies while employed.
The above changes are being expedited in light of the ongoing battle against Covid-19, the country’s dire economic climate and the fact that many members of pension/provident funds are in need of funds.
The changes have been welcomed by many, however not without caution by others as an early withdrawal will undoubtedly impact growth of one’s savings and possibly result in a smaller lump-sum withdrawal on retirement.
There is no definitive effective date for the proposed changes as it will require legislative and fund-rule amendments to enable early withdrawals. Further, to this, it is unlikely that the early withdrawal process will cover the Government Employees Pension Fund (GEPF) as this is not regulated under the Pension Fund Act.
This change will undoubtedly provide relief to many; however, one should always remain cautious when dealing with retirement savings.
For further details and guidance on the changes, consult your fund manager.