Parliament’s finance committee has gone against the advice of the Treasury and the retirement industry in deciding that the two-pot retirement system will be implemented on March 1 2024.
The Treasury and the industry wanted the system implemented in 2025 to enable the SA Revenue Service (Sars) and the industry to get systems in place, which they say can be done only once the law has been promulgated. The Treasury has insisted March 1 2024 is not feasible.
This is the second time in two weeks that the finance committee has gone against the Treasury’s advice, having supported an expansion of the VAT zero-rated food basket despite opposition from finance minister Enoch Godongwana.
The decision on the two-pot implementation date was taken on Tuesday in deliberations on the Revenue Laws Amendment Bill. In terms of the Money Bills & Related Matters Act a committee amendment to a money bill as tabled (which in this case stipulated an implementation date of March 1 2025) has to follow certain procedures, including its referral to the finance minister, who has to respond.
The committee is unable to change a money bill immediately and unilaterally, nor can it report on the bill to the National Assembly without following the procedure laid down in the act, as is required by the constitution. At the same time, committee members stressed that it is an independent entity, separate from the executive.
Committee members argued that retirement funds should be able to implement the two-pot system as and when they are ready from March 1.
The industry has warned against this staggered approach, saying it would confuse retirement fund members. The Treasury has said it would be difficult to manage administratively from a tax point of view.
Committee chair Joe Maswanganyi said postponing the implementation date for another year would be unfair to workers who are drowning in debt. But Treasury acting head of tax and financial sector policy Chris Axelson stressed the industry’s valid concern that between 12 and 18 months are required after promulgation of the act to make the required system changes. The same applies to Sars.
Pension fund administrators may have to liquidate some funds to be able to make payments in terms of the system, and retirement fund members need to be educated about the changes, Axelson said.
He added that mistakes could be made in the changes to systems if implementation were rushed, which could cause a lot of stress and harm. The two-pot system will introduce significant changes and is an entirely new retirement fund system, he said.
Association for Savings and Investment SA senior policy adviser Adri Messerschmidt said it is “unreasonable” to expect full implementation of the system by March 1 when there is still much uncertainty on the final enabling legislation.
“The two-pot system presents a fundamental change to the SA retirement fund landscape and its implementation should be handled with great care to ensure that all retirement fund members are treated fairly and afforded the opportunity to consider the impact of the changed landscape on their individual financial affairs,” Messerschmidt said.
“Our members have worked relentlessly to prepare their processes and IT systems for implementation of the two-pot system but they cannot finalise implementation without final legislation that clarifies certain elements,” she added.
“A hasty implementation and inequitable treatment between members of different funds could introduce risks with unintended consequences.”
Allan Gray head of assurance Richard Carter said there are significant risks in rushing.
“We are surprised by today’s vote in favour of bringing the two-pot implementation to less than four months from now.
“This is a tough ask as most retirement funds and their administrators will simply not be ready in time. Given that consultations on the detail are still in progress and that regulation is still being finalised, we believe that moving it forward is premature; 2025 is a more sensible timeline as it gives everyone time to accommodate the changes,” Carter said.
“If you hurry the legislation through and rush the changes ... and you then cannot pay people what they expect, it can be dangerous and end up doing more harm than good.”
The two-pot system will require new contributions made to retirement funds to be split into two portions: a retirement component and a savings component, from which one withdrawal a year will be allowed.
Cosatu acting national spokesperson Matthew Parks welcomed the committee’s decision but warned of the very tight time frames ahead of the March 1 implementation date.
The bill as approved by the finance committee still has to be adopted by the National Assembly, be processed by the select committee on finance of the National Council of Provinces (NCOP) and adopted by the NCOP before being sent to President Cyril Ramaphosa for assent and promulgation.
Parliament rises for its recess in early December and is due back in February.
“There is still a lot of work that needs to be done,” he said.
He noted that the two-pot system has been on the Treasury’s drawing board since 2020 and has been subjected to repeated delays. “The Treasury has continuously kicked the can down the road.”
He emphasised that the change is desperately needed by workers in financial distress who need access to their savings and would otherwise resort to cashing in their entire pension.
In terms of the proposed two-pot system, all retirement savings after the implementation date will be split: a retirement pot into which two-thirds of contributions will be invested and can be accessed only after the age of 55, and a savings pot into which one-third of contributions will be invested.
Part of the funds accumulated before implementation of the new system (the vested component) will be accessible immediately (seed capital) and thereafter a minimum R2,000 withdrawal can be made once a year from the savings pot. Seed capital will be calculated as 10% of the benefit accumulated in the vested component limited to a proposed R30,000, whichever is the lesser.
Update: November 21 2023
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