New retirement system for South Africa hits roadblocks
President Cyril Ramaphosa may have signed the Revenue Laws Amendment Bill, but other pieces of legislation and systems still need to be signed and created before the Two-Pot retirement system becomes effective.
There are at least four roadblocks for the new system. Specifically:
- The signing of the Pension Fund Amendment Bill needs to take place
- The Revenue Second Amendment Bill needs to be finalised
- SARS needs to finalise system requirements
- The seeding calculations for the new system can only take place after August
The signing of the Revenue Laws Amendment Bill will allow for the implementation of the Two-Pot system on 1 September 2024.
The new system will allow individuals to access up to one-third of their retirement savings before retirement via a “Savings Pot.” The remaining two-thirds will be placed in a “Retirement Pot” that will only be accessible upon retirement.
“There are significant long-term benefits of this new system, which will bolster financial well-being and provide more flexibility,” said Blessing Utete, Managing Executive of Old Mutual Corporate Consultants.
That said, the success of the system rests on preparation and targeted member education.
“One of the most important points to communicate to members is when their money will be accessible. Even though the legislation goes live on 1 September, it doesn’t mean funds may be able to pay out on that date as there are several steps that need to be implemented first,” said Utete.
“This is primarily because the allocations to the Savings Pot can only happen from 1 September onwards”.
Under the new system, members will see the lower of either 10% of the value of their retirement fund or R30,000 as of 31 August 2024 allocated to their Savings Pot from 1 September.
From then on, two-thirds of any new savings will be dedicated to retirement and cannot be accessed until then.
Members of Provident and Provident Preservation Funds who were 55 or older as of 1 March 2021 in that same fund will decide to opt into the new system or stay in the current system.
In addition, Michell Action, Old Mutual’s Retirement Reform Executive, said that the payouts from the emergency pot will not be made immediately.
“Seeding calculations can only be conducted after the end of August, using the values from that month,” said Action.
“The legislation allows for seeding calculations soon after implementation, not necessarily on that date. As a result, actual access for members will likely take place after 1 September.”
Admin still to do
The funds also need to do a great deal of work before they are ready for the new legislation.
The seeding calculation, for instance, determines the initial amounts that will be allocated to the different pots and will depend on the individual savings of each member.
Depending on the rules of each retirement fund, the process could still take several working days to weeks.
“The Two-Pot system is designed to be an emergency savings vehicle, giving you that initial boost to help build your emergency savings,” said Acton.
“However, if you deplete it on day one, it ceases to serve as emergency savings.”
In addition, the signing of the Pension Fund Amendment Bill and the finalisation of the Revenue Second Amendment Bill are crucial before the legislation is in place for implementation.
SARS also needs to finalise system requirements, as no Savings Pot payments can be made without an easy tax deduction directive process.
Members will also need to have their tax affairs in order before applying for a Savings Pot withdrawal. SARS may deduct any other outstanding tax before payment is made.
Members will need a tax number to apply for a Savings Pot withdrawal.
“We need to significantly ramp up employee financial literacy initiatives around retirement reforms and overall financial well-being to facilitate a successful integration of the system,” said Utete.
“Members will also need to take the time to understand this new system and the importance of saving for retirement.”
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