South Africa’s new two-pot retirement system has hit a bureaucratic hurdle – with National Treasury’s recommendation to delay its implementation rejected by the Standing Committee on Finance.
Under the new pension system, a “savings pot” will be created with a maximum contribution of one-third of all retirement savings. These funds will be accessible before retirement.
A second “retirement pot”, which will need a minimum allocation of two-thirds, will only be accessible at retirement.
A third “vested pot” will hold all accumulated retirement funds from before the two-pot retirement system is implemented – and follow the current retirement fund laws.
Although there are concerns that the new system will fuel “short-termism” and defeat the point of a pension fund, it does counter one of the biggest problems in the current system – the ability to access one’s entire pension savings.
In the current system, pension funds will allow members to cash out completely when changing jobs, resulting in members losing all their savings and missing out on compound interest.
“The Two-Pot’s short-term access is the lesser of the two evils. At the very least, it solves one problem: more South Africans can retire better,” Old Mutual’s Michelle Acton said.
However, during deliberations on the Revenue Laws Amendment Bill, the Standing Committee on Finance said that the new two-pot retirement system will go live on 1 March 2024.
This is despite the National Treasury recommending that the new two-pot system start on 1 March 2025, as asset managers stressed that they cannot amend their systems in time for the new system.
“The extended period should offer us all an opportunity for constructive engagement with all stakeholders to refine the implementation plan and address potential challenges,” said the CEO of Momentum Corporate, Dumo Mbethe.
Sanlam previously said that it did not expect any postponement in the implementation date of the two-pot system, as 2024 is an election year, and new legislation is often used as a vote-gathering tool.