Treasury clarifies South Africa’s new pension system – including issues around divorce

National Treasury has responded to several comments and concerns raised by the Standing Committee on Finance (SCOF) around South Africa’s new two-pot retirement system, which is expected to kick in from September 2024.

The laws, once promulgated by the president, will put in place a new pension system where one-third of retirement contributions will automatically go into a ‘savings pot’ and be accessible before retirement.

A minimum withdrawal of R2,000 will apply to this pot, and each retirement fund member will be restricted to one withdrawal per tax year.

The remaining two-thirds of retirement funds will go into the ‘retirement pot’, which will be used to buy an annuity-providing product at retirement.

A third vested pot will hold most of the retirement savings until the two-pot system is launched and will follow current legislation.

Presenting to the committee on Tuesday (19 March), Treasury noted various concerns raised about the system and agreed to make some changes, add clauses and clarify points of contention – while rejecting other comments.

Broadly, Treasury’s presentation clarified its position on:

• The new definition of pension interest
• Application of the laws in terms of the Divorce Act
• Loans and guarantees
• Section 37D-related deductions
• Various clarifications and corrections in drafting
• Proposed amendments to the Pension Funds Act and the Pension Fund Amendment Bill

One of the biggest issues Treasury moved to clarify is how the new pension system works in relation to divorce procedures.

The SCOF made the recommendation that the Bill not introduce clauses that are not related to the two-pot system itself, such as those which include the payment of divorce awards from pension income.

“This introduced a significant deviation from the current provisions of the Pension Funds Act, which provides for a splitting of the capital value of pensioner’s pension after retirement,” the SCOF said.

Treasury said that the current wording in the Act will be retained, adding further that an application clause will be inserted into the PFA Bill to clarify that whenever there is a conflict between the Divorce Act and the PFA, the PFA will apply.

This will address any apparent contradictions between the PFA and the Divorce Act, as both contain provisions dealing with pension interest, and have laws which will ultimately be applied by pension funds.

It will now be made clear that the PFA supersedes the Divorce Act in dealing with these matters.

Treasury said that checks and balances around divorce proceedings would also be added to the bill – specifically that written notification and proof that divorce proceedings have been instituted or an application has been made will ultimately be required.

More changes

Treasury is proposing two further amendments to the bill – specifically that the Pension Funds Act be to changed to provide for reference to the Tax Administration Act to clarify tax deductions against the benefit of a member of a retirement fund.

The other proposed change is to public sector pension laws for inclusion into the PFA Bill.

This includes amending the Pension Funds Act, Post and Telecommunications-related Matters Act, Transnet Pension Fund Act and the Government Employees Pension Law with new definitions and applicable changes to enable the savings withdrawal benefit and other features of the new system.

The full presentation can be read here.

The two-pot retirement system is expected to come into effect from 1 September 2024.

Read: New pension system in South Africa – avoid this big ‘don’t’