Update on the two-pot retirement system, due to be implemented on the 1st September 2024.
As mentioned previously, there has been pressure to implement the two-pot retirement system. Political role-players are demanding an early introduction, while the retirement industry is pushing for more time to get systems set up to cater for the deluge of claims they are expecting. The start date on the 1st September was always going to be a challenge, and National Treasury are now admitting they are expecting “teething issues”.
While the Revenue Laws Amendment Bill 2023 is yet to be signed by the President, the biggest obstacles so far are those that the retirement industry faces. Retirement fund administrators are required to draw up draft rules for the new system even though the relevant legislation has not yet been finalised. The Financial Sector Conduct Authority (FSCA) must consider and approve every fund’s rules before the implementation date. The FSCA have said that pension funds will need to submit their draft rules between the beginning of May and mid-July 2024 so that it can give “in principle” approval of the rules, even though the legislation will not have been officially finalised.
National Treasury have acknowledged that some challenges and complexities will not have been completely addressed before the implementation date, and that some minor changes will need to be made going forward.
The second piece of legislation (the Pension Funds Amendment Bill) impacting the two-pot system was the subject of public hearings in Parliament on the 16th April. It is worrying that both pieces of legislation still need to be promulgated before this process can start, especially with the implementation date just around the corner.
So, what does this mean for the payroll industry?
The compromise date of 1 September 2024 is proving to be a challenge to both the legislators and the retirement industry. Very little information is available to the payroll industry and employers are going to be put in a very difficult position when employees approach payroll offices asking to submit claims. Most of these offices are ill-prepared to assist with the education that still needs to happen.
Employees need to understand that the withdrawal of retirement savings is an expensive way of accessing money. They need to understand the impact of taking money out of a fund benefiting from the compound interest concept, and forgoing a return on investment. Pulling money out of the retirement fund is going to hurt employees’ retirement planning as replacing it will become more difficult if the economy remains under pressure.
We suspect that there will be a last-minute slew of roadshows and training sessions. Whether that will filter down to payroll offices where desperate employees will be waiting to make their claims is uncertain. We suspect not though, which will lead to unhappy claimants and very stressed payroll administrators. It is difficult not to wonder why processes like this just cannot be planned and implemented properly from the start.
As further information becomes available, we will update you via our newsletter.