National Treasury intends to have measures in place before the end of next year to discourage you from cashing in your retirement savings before you retire.

Government plans to introduce compulsory preservation in two phases. Initially, it had proposed to introduce the new regime on one date, known as P-Day.

The two phases are:

* “P-Day soft”, which will make the preservation of savings the default option when you leave your job. This phase is expected to be introduced this year.

* “P-Day hard”, which will restrict pre-retirement withdrawals of savings. This phase will be introduced next year.

Government has again assured members of retirement funds that they will not lose their existing (vested) rights to make pre-retirement withdrawals of money that they saved in an occupational fund before “P-Day hard”.

Even after “P-Day hard”, there will not be a blanket ban on withdrawals if you resign from or lose your job; you will still be able to access some of your savings if you leave an occupational fund before you retire.

The current proposals are that you will have access to all contributions and investment growth made before “P-Day hard”, although you will have to make a deliberate choice to take the money.

In addition, after “P-Day hard”, you will, annually, be allowed to access a percentage of the contributions and investment growth made after “P-Day hard” to help you in the event of a financial crisis, such as unemployment. The National Economic Development and Labour Council (Nedlac) – the government, business and labour negotiating forum – is discussing what percentage of your retirement savings you should be allowed to access.

The regulations that will give effect to “P-Day soft” are scheduled to be implemented this year. Once they are, your savings will have to be retained in a retirement fund until you retire, unless you deliberately decide to take all or part of your savings as a cash lump sum.

Currently, the default position if you leave your job before retirement is that you are paid out your savings, less tax, as cash. You have to ask your fund to retain your savings, or ask the fund to transfer them to another fund (the occupational fund of your new employer) or a preservation fund.

The purpose of “P-Day soft” is to make preservation – either in your current retirement fund or another fund – the default option.

If your current fund retains your savings after you leave your job, you become what is known as a non-contributing deferred member, and the savings you leave in the fund continue to earn investment growth.

Olano Makhubela, a chief director at National Treasury, says that draft regulations giving effect to “P-day soft” will be published shortly for public comment.

The regulations will address how preservation will apply in funds that do not allow members to become deferred members – mainly umbrella funds that are sponsored by the financial services industry.

The regulations will also aim to make it easier for members to transfer their retirement savings from one fund to another when they change jobs. People who join a fund will be asked if they were a member of a fund previously. If they were, the fund will offer to bring in the savings on the member’s behalf, or to transfer them to a preservation fund of the member’s choice.

Makhubela says consideration is being given to making it compulsory for you to receive financial advice – in particular, on the tax consequences – if you decide to withdraw your savings as cash.

Compulsory preservation already applies to savings in retirement annuity (RA) funds and preservation funds, where you may not withdraw your savings before the age of 55. Apart from one withdrawal allowed from a preservation fund, absolutely no other withdrawals are permitted before your date of retirement.

If you belong to a pension fund, an RA or a pension preservation fund, you may take up to one-third of your retirement savings as a cash lump sum at retirement. You must use the balance to buy a pension.

The one-third/two-thirds structure will also apply to provident funds when a new retirement fund tax regime is introduced on March 1, 2015, known as T-Day.

Currently, members of provident funds and provident preservation funds can withdraw all their savings as a cash lump sum, less tax.

Provident fund members who are 55 years old on T-Day will not have to use part of their savings to buy an annuity, and those who are under 55 years will be required to annuitise only what they contributed after March 1, 2015. Even members of this latter group are very unlikely to be affected by the requirement to buy an annuity, because they will not have to buy a pension with the contributions made after T-Day if these are less than R150 000.

Under-55s will have vested rights to what they contributed to a provident fund before T-Day, as well as the investment growth on it. In other words, both under-55s and over-55s will be able to take all savings and growth accrued until March 1 next year as a lump sum at retirement.

* In his Budget speech this week, Finance Minister Pravin Gordhan made it clear that government remains committed to introducing measures that will make it mandatory for all employed South Africans to save for retirement. Government is discussing with labour and business at Nedlac how to include the six million employed South Africans who are not members of occupational retirement plans.