Note from editor – as we publish this the Parliament finance committee looks as if it wants to push to have the two pot implemented by 1 March 2024 and not 1 March 2025. We are not yet sure what this will mean, but will report on it as we find out more news.
We have published numerous articles on this topic over the past year. In them, we mentioned that there were likely to be changes and challenges as all parties worked through the practicalities of the process.
The first of these changes was to be expected, and it relates to the implementation date. National Treasury has proposed that the implementation of the so-called two-pot retirement system, which allows people to access a portion of their pension savings before retirement, be delayed by a year. Treasury now wants the system implemented on the 1st March 2025, as opposed to the original implementation date of 1 March 2024. This will give the savings and investment industry more time to grapple with the complex task of administering the changes.
The very magnitude of the reform, the need for system changes and vital communication between funds and their members in terms of how this will impact on their future contributions, necessitated the extension.
The current system enables South Africans to withdraw their full pension savings, subject to taxation, when they leave a job, with this often leaving them with no retirement savings when reaching retirement age. The planned two-pot system will prevent this as it will be compulsory for retirement funds to split member contributions into two components, with one-third going to a savings pot that is available any time to meet emergency expenses, and the remaining two-thirds to go to a retirement pot to be used to purchase an annuity upon retirement. There is effectively also a third pot, that being the pot of savings up to the above-mentioned implementation date.
Another amendment proposed by Treasury is the increasing of the immediately accessible amount from R25 000 to R30 000. This ‘seed capital’ amount equates to 10% of a member’s retirement savings value on the 28th February 2025, up to a maximum of R30 000. Any lump sum withdrawals from a worker’s savings pot after the 1st March 2025, including seed capital, will be subject to tax should it be withdrawn before retirement.
Unions are not pleased with these proposals as they delay employee access to emergency funds that are often urgently needed in our struggling economy. They believe that the delay may push more employees to resign from employment to access their pensions. They are also unhappy with the accessible limit of R25 000 and are pushing for it to be increased to R50 000.
Other proposals made by Treasury are the implementation of a withholding tax process rather than a tax directive process for savings withdrawal claims, with SARS to provide guidance on the correct tax rate to fund administrators. Provident fund members who were 55 years or older on the 1st March 2021 will be able to voluntarily opt in to the two-pot system and will not have it automatically applied to them.
It makes sense that such a fundamental change to the retirement fund industry be carefully planned and rolled out. All parties must work together to ensure that the process is fit for purpose and most importantly, beneficial from a short and long-term perspective for fund members. It is hoped that the final legislation will be published as soon as practically possible so that there is no uncertainty for any party.
We will ensure that any movements in the regulatory process are relayed to you as soon as they are made public.