South Africa takes a step closer to new two-pot retirement system

 ·1 Feb 2024

The Minister of Finance, Enoch Godongwana, has published the much-anticipated Pension Funds Amendment Bill (Pension Bill), which would see the implementation of a two-pot retirement system.

Godongwana introduced the bill in the National Assembly on January 30, 2024, and it is expected to be finalised by the end of March.

Legal expert from Bowmans, Deidre Phillips said that the purpose of the Pension Bill is to amend the Pension Funds Act, 1956 (PFA) to insert certain definitions to provide for:

  • The introduction of the savings withdrawal benefit;
  • The appropriate account of a member’s interest in the savings, retirement and vested components;
  • Deductions that may be made.

“The proposed amendments to the PFA follow from the publication of the Revenue Laws Amendment Bill (B39-2023), which establishes the so-called ‘two-pot retirement system’,” said Phillips.

“It is expected that the two-pot retirement system will take effect on 1 September 2024, however, we are still awaiting the amendment to the Income Tax Act, 1962, by the Revenue Laws Amendment Act,” she added. 

The Standing Committee on Finance (SCoF) is set to meet on February 6, to receive a briefing by the National Treasury on the Pension Bill.  Additionally, further meetings are scheduled for the ScoF on the 12, 19th, and 26th of March respectively. These are for public hearings on the bill to take place, allow for responses by the National Treasury, and the possible consideration and adoption of ScoF’s report.

“Whilst the schedule is subject to change, it appears that there is at least the intention to have the Pension Bill finalised towards the end of March 2024,” said Philips.

Rael Bloom, an investment specialist from Coronation, said that while the “system should result in better retirement outcomes for members in the long term”, “if the system is not implemented properly, then there is a risk of member discontent, which could undermine confidence in the retirement industry.”

These include implementation/execution, initial seed capital payment, and sustainability risks.

Phillips said that the debate has arisen as to whether it is possible for private and public sector retirement funds to implement the two-pot retirement system “bearing in mind that we are yet to see the final legislation.”

She said that this includes the “Income Tax Act, 1962, as amended, “which is the first step towards implementing the two-pot retirement system; the final PFA which is necessary for private sector retirement funds to give effect to the two-pot retirement system; as well as other acts applicable to public sector retirement funds.”

“Whilst the answer to this question largely depends on the legislative developments, there are several proactive steps that can be taken,” including understanding the proposed amendments to the Income Tax Act and the Pension Funds Act, said Philips.

Read: Major worries over South Africa’s new two-pot retirement system

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