‘Don’t rush retirement system’

The danger of rushing the implementation of the twopot retirement system puts South Africa’s retirement fund system at a critical juncture.

While a successful implementation promises to address key long-standing deficiencies in the current retirement framework, an unsuccessful or rushed implementation runs the risk of destabilising or undermining confidence in a crucial sector of the economy.

The two-pot retirement system divides retirement fund contributions into a retirement pot and a savings pot. The former will hold two-thirds of contributions and will be strictly preserved for retirement, while the latter – holding the remaining one-third – can be accessed before retirement to use for financial emergencies.

Parliament’s finance portfolio committee agreed to an implementation date of 1 September, 2024 after previously insisting that the system be implemented on 1 March, 2024.

But Rael Bloom, product development actuary at Coronation, says while this reprieve provides additional time for industry stakeholders to prepare for the change, the deadline remains challenging due to several key issues that must be resolved. They include:

A raft of regulatory changes required to give legal effect to this new system and provide clarity about the changes required. This includes changes to the Income Tax Act and Pension Fund Act that must still be finalised and promulgated;

Sars must adjust its systems and processes to accommodate the tax requirements;

The Financial Services Conduct Authority must approve enabling rule amendments for all retirement funds affected;

Administrators must make necessary system upgrades and adjustments to meet the requirements of the new system;

Funds must make preparations like ensuring they have the correct bank details for members; and

There must be member education about the new system to help members understand how the new twopot system works, dispel any myths about it and clarify what will happen to the accumulated savings pots.