In South Africa, the Provident Fund is a retirement scheme run by the government. The government makes it compulsory for employees and employers to contribute to the scheme. The government also determines the conditions for withdrawing by setting the age limit you need to attain and the amount.
The Provident Fund was introduced in 1926 to help ensure that employees have a secure retirement. The program is managed by the South African government. To be eligible for the Provident Fund, you must be employed and have an active pay record with your employer.
The South African government has extended the implementation date for the Retirement Fund Two Pot system withdrawal to the beginning of March 2024. According to the new bill, members of retirement funds will be able to withdraw one-third of their pension fund whereas two-thirds will be accessible only during retirement. A savings element has also been introduced to allow members to withdraw a maximum of R2 000 once a year.
The two-pot system means South Africans will be able to access one-third of their retirement savings throughout their career, while two-thirds will only become accessible on retirement. The reform is meant to deter South Africans from cashing out their retirement savings when they resign, and also to prevent workers from resigning to access their retirement funds.
How a Provident Fund Government Works
The money held in private savings accounts continues to grow in many developing countries, but it’s still rarely enough to provide most families with a comfortable retirement life.
The challenge of retirement has been further deepened by social change. Societies in the developing world are still catching up with the rapid rise of industrialization, the movement of citizens from rural areas to urban centers, and changing family structures. In traditional societies, for example, the elderly were provided for by their extended families. But declining birth rates, widely dispersed family members, and longer life expectancies have made it more difficult to sustain this age-old safety net.
For these reasons and more, governments in many developing countries have stepped in to provide long-term financial support to retirees and other vulnerable populations. A provident fund finances such support in a way that readily scales payouts to the available balance and enlists employers and workers to help cover the cost.