Ramaphosa green lights new pension system for South Africa

President Cyril Ramaphosa has signed the Pension Funds Amendment Bill into law, allowing the implementation of the Two-Pot retirement system.

The new two-pot retirement system will have a savings and retirement pot.

The savings pot will hold one-third of all retirement savings and will be accessible before retirement age.

The retirement pot will hold the remaining two-thirds of retirement savings and will only be accessible upon retirement.

A third vested pot will hold all the retirement savings until 31 August 2024, except for the R30,000 capped seed capital for the savings pot, and will follow existing legislation.

The new retirement system aims to allow members to access liquidity during emergencies, such as the Covid-19 pandemic.

Old Mutual Corporate has welcomed the decision, which allows the Financial Sector Conduct Authority (FSCA) to start approving rule amendments once they are gazetted.

These amendments will be critical for approval before funds can start paying any claims from 1 September 2024.

“There is a misconception that funds must have created the pots before 1 September, which is incorrect. The law comes into effect on 1 September, after which funds can start implementing the pots and seeding them,” said Michelle Acton, Retirement Reform Executive at Old Mutual.

Acton added that retirement funds and administrations still have a lot of work to do before they can pay claims, including ensuring administration readiness and integration with SARS.

Furthermore, members in a financial predicament must be patient and not expect the money to come on 1 September for other commitments.

“Seeding calculations can only be conducted after the end of August, using the values from that month. The legislation allows for setting calculations after implementation, not necessarily on that date,” said Acton.

“This seeding calculation, which determines the initial amounts to be allocated to different ‘pots’ or accounts based on existing retirement savings, relies on the current amount of savings in each member’s retirement account and their market value.”

“This process could take several working days to weeks, depending on the rules set by each retirement fund.”

“It is also important to note that only members who have more than R2,000 in their savings pot in September will be able to claim.”

“Approximately 30% of our members in the Old Mutual stable will have less than R2,000 in their savings pot and will not be able to claim. Therefore, members need to assess their fund balance to see if they will qualify in September.”

Moreover, the draft of the Revenue Second Amendment Bill needs to be finalised before the legislative process for the two-pot system is completed.

“However, the signing of the Pension Funds Amendment Bill marks a significant milestone in South Africa’s retirement landscape,” said Acton.

Not everyone will be included

It is important to note that not everyone will have access to their retirement savings, with Alexforbes noting that the following exclusions apply:

• Legacy retirement annuity funds

• Beneficiary funds

• Unclaimed benefit funds

• Pensioners

• Members who were 55 years and older on 1 March 2021 who do not choose to opt into the two-pot retirement system between 1 September 2024 and 1 September 2025

There are also greater long-term risks for those who withdraw from the savings pot.

New members who contribute 15% of their income to their retirement savings could see their replacement ratio (the percentage of an individual’s employment income that is replaced by retirement) rise to 75% if they don’t access the savings pot prior to retirement.

Those who access the 100% annual withdrawal limit will see a drop to a 50 replacement ratio.

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