Compromise for two-pot system
Parliament’s finance committee has agreed to a compromise implementation date for the two-pot retirement savings system of September 1 2024, as proposed by finance minister Enoch Godongwana.
It previously decided on a March 1 2024 implementation date, which the retirement industry believed is not feasible. The Treasury originally proposed March 1 2025, but the committee felt that the financial needs of struggling workers require an earlier date and went against the Treasury’s proposal.
Godongwana sent a letter in response to the committee’s previous decision — as required by the Money Bills Amendment Procedure and Related Matters
Amendment Act, which stipulates that when an amendment is made to a money bill by a parliamentary committee, the minister must be informed and must be given 14 days to respond.
In his letter the minister said “it is highly unlikely that we will be able to achieve a smooth implementation in restructuring the retirement system by March 1 2024”.
Association for Savings and Investment SA senior policy adviser Adri Messerschmidt said the industry accepts the date agreed on by the minister and the committee. “Our industry will do its best to have systems ready for a September 1 2024 implementation date once we receive the final legislative amendments to the Income Tax Act and the Pension Funds Act, and the clarification of required
Sars processes,” she said.
In terms of the two-pot system, contributions to retirement savings will be split, with onethird going into a savings pot from which one annual withdrawal can be made. Two-thirds will go into a retirement pot, which cannot be touched until retirement. A maximum of R30,000 can be withdrawn from accumulated savings when the system comes into effect.
In his letter to the committee, Godongwana outlined a number of reasons why a March 1 2024 date is not feasible.
He said the Pension Funds Amendment Bill, which will enable retirement funds to amend fund rules to cater for the two-pot system, has not yet been tabled in parliament and might not be promulgated before March 1 2024. The effective date of the Revenue Laws Amendment Bill cannot predate the implementation of the Pension Funds Amendment Bill.
Pension funds will be required to amend their rules, which will be submitted to the Financial Sector Conduct Authority (FSCA) for registration. This can happen only after the two bills have been enacted.
Godongwana said it would take about three months from the receipt of draft rules for approvals to be finalised. The 1,324 active retirement funds will all be required to submit amended rules for registration and approval.
There are retirement funds that are not regulated under the Pension Funds Act but are regulated in terms of separate acts of
parliament and they will have to follow their own processes, which in the case of the Government Employees Pension Fund (GEPF) is likely to take some time to complete.
Godongwana also noted that to enable withdrawals from the savings pot at the date of implementation, funds must be able to apply the correct rate for the withholding of tax. This would be done through a directive by the SA Revenue Service (Sars).
Sars has indicated it needs at least six months after the promulgation of legislation to put such a system in place. There would be risks to an implementation date that is too early.
The minister said the need for liquidity to cater for upfront withdrawals could result in direct negative market effects from a March 1 2024 implementation date as assets will need to be disposed of over a shorter period. Fund managers would need to urgently reallocate their portfolios.
Another reason for more time is that fund members need to be educated about the effects of the new regime on their retirement savings.
Godongwana said Treasury officials have had discussions with Sars, the FSCA, the GEPF and the Government Pensions Administration Agency, “and these institutions have indicated that a September 1 2024 implementation date would be achievable, even though they would still be under pressure to get their internal systems and processes ready by that date”.