The National Treasury has made major concessions to trade unions and the retirement industry on its proposed two-pot retirement system by granting workers immediate access to some of their accumulated savings and extending the implementation date by a year.
The Treasury has proposed that the new system will now take effect from March 1 2024, but the retirement industry represented by the Association for Savings and Investment SA (Asisa) remains sceptical that the new date is feasible.
The two-pot system includes a savings portion of retirement funds comprising one-third of contributions. That money will be accessible in the form of one withdrawal of a minimum of R2,000 per year.
A separate retirement pot will hold two-thirds of contributions and will be accessible only on retirement.
In terms of the original draft bill, the vested pot of savings accumulated before the date of implementation would not be accessible and would be subject to the prevailing tax rules.
“It is clear that there is still a lot to be done and finalised, so the March 1 2024 implementation date is still very ambitious — probably too ambitious,” Asisa senior policy adviser Rosemary Lightbody said in parliament on Tuesday. She has said previously that the industry would require at least 18 months to prepare for the new system.
Cosatu parliamentary liaison officer Matthew Parks welcomed the concessions, but suggested October 2023 as the implementation date.
Many workers need urgent access to their retirement savings without being forced to resign to do so, he said.
Treasury chief director of legal tax design Yanga Mputa said the department would have completed all preparations by March 2024, while Franz Tomasek, the head of legislative policy tax, customs and excise at the SA Revenue Service, said the implementation date would depend on consultations with stakeholders.
Treasury director for retirement savings Alvinah Thela said the department accepted that the original implementation date of March 1 2023 is not feasible, given the changes required to administer the two-pot system. A lead time of at least 12 months is required to allow retirement funds to make changes to their rules and facilitate systems and process changes, she said.
The Financial Sector Conduct Authority would need time to consider, approve and register the rule amendments. Consideration of specific amendments to the Pension Funds Act are also required, she said.
Thela said the government was open to allowing a one-off transfer of money from the vested portion into the savings pot “as long as it does not have adverse implications on liquidity, and the costs of such withdrawal is not imposed on members choosing not to withdraw.
“The mechanism to enable this will require consultation ... to take the relevant risks and benefits into account as well as possible trade-offs on vested rights.”
Asisa has opposed immediate access to savings in the vested pot, warning that this could create liquidity challenges.
Regarding workers being able to access the retirement pot on retrenchment or resignation, Thela said that “given that retrenchment is beyond the member’s control, government proposes that limited income-based withdrawals be permitted from the retirement pot”.
Such withdrawals would be subject to a member having depleted the vested or savings pots, access to UIF benefits having been exhausted, and proof that the member had no other source of income “and will be provided for a limited period and as a form of annuity (with a maximum per year)", she said.
Thela said consultations would be held with defined benefit funds such as the Government Employees Pension Fund on their incorporation into the two-pot system.
Different considerations would apply as the benefits are calculated by a formula, not by a member’s contributions and the fund’s investment performance.
“Protective mechanisms will be explored, including increasing future contributions when a member withdraws funds before retirement.
“The outcome of the consultative process will then inform any required legislative amendments,” she said.
The Treasury has accepted that members who exit a fund with less than R2,000 in the savings pot be allowed to either withdraw the amount or have the balance automatically transferred to their retirement pot.
Thela clarified that the two-pot system would be mandatory for all retirement funds.
Provident fund members who were 55 years or older on March 1 2021 would be given the option of continuing to contribute to their vested pot — in such cases 100% of the contribution will be allocated to the vested pot provided the member remains in the same fund they were a member of before March 1 2021 — or participating in the new regime.
Changes are required for section 37D of the Pension Funds Act to cater for the two-pot retirement system and to ensure that section 37D deductions are catered for from the vested and retirement pots when membership of the fund is terminated or when divorce order settlements become due and payable.
Update: September 20 2022:
This story has been updated with additional information from the eighth paragraph.
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