Finance Minister Enoch Godongwana, in a letter, proposed that Parliament extend the date of implementation of the two-pot system from March 1, 2024, to September 1, 2024.
The new proposed two-pot system intends to allow members of retirement schemes the flexibility to access one-third of their savings before retirement while keeping the other two-thirds for retirement.
In a letter that was read out to the committee, Godongwana raised concerns about the March 1, 2024 implementation date. The final decision on the implementation date is yet to be completed.
The two-pot retirement system issue is due to be tabled before the National Assembly on Wednesday, December 6, 2023, for debate.
According to Webber Wentzel Partner Joon Chong, and Senior Associate Nicolette van Vuuren, the two-pot system arose from a simple concept that has huge political appeal, to allow financially distressed fund members to withdraw a limited amount of money from their pension savings.
“Up to now, financially distressed members of funds have had to leave their employment to access their pension and provident fund savings. Actuarial studies have also indicated that the retirement component which must be annuitised only on retirement will overall result in members having greater amounts of retirement savings, even if they decide to withdraw the savings component in full every tax year,” Van Vuuren and Chong said.
Godongwana highlighted some concerns with the March 1, 2024 implementation date.
He said retirement funds cannot amend their fund rules to cater to the “two-pot” system until the Pension Funds Amendment (PFA) Bill is tabled in Parliament, explaining that the effective date of the RLAB cannot predate the implementation of the PFA Bill.
Godongwana, according to Van Vuuren and Chong, said: “Once these bills have been tabled, funds will have to submit their amended fund rules to the Financial Sector Conduct Authority (FSCA) for registration. Funds are also required to communicate the proposed amendments to the fund rules and their impact on members.
“While the FSCA can have their internal systems ready to receive fund rule amendments from 1 March 2024, it will take approximately three months from receipt of draft rules for approvals to be finalised,” he said in the letter. There are 1 324 retirement funds [that] will all be required to submit amended rules for registration and approval,“ Godongwana said.
Godongwana said the South African Revenue Service (Sars) has indicated that they need at least six months after the promulgation of the legislation to put a system in place to deal with applications from funds for the correct tax rate to be applied to withdrawals from the new “savings component”.
Chong and Van Vuuren said the minister's proposal of September 1, 2024, recognises members' urgent need for funds and the practical challenges of implementing the system after promulgation.
Allan Gray head of Assurance Richard Carter said: “We welcome the adjustment to the two-pot implementation date, which is a reasonable compromise between going live in March 2024 and March 2025.
“Although still tight, the additional six months will give retirement funds and their administrators more time to prepare for and accommodate the changes, while at the same time not overly delaying access to funds for members in desperate need. We now await the legislation, which we hope will be finalised sooner rather than later, so that everyone can be clear on exactly what changes are required and get going on implementing these.”
NMG Benefits head of retirement fund Janice Masencamp said the two-pot retirement system's newly proposed date to September is not yet final, the shift is to allow for implementation strategies to be put in place across the industry and allow it to prepare accordingly.
“That is the core of what the proposed move means. This move also allows for rule amendments across funds to have the time to be approved by Sars, FSCA, and the government and be implemented. Most importantly, it permits for fine-tuning of the implementation process across the industry to ensure that cybersecurity is also in place, and that implementation follows regulatory, governance, and legislative requirements.
“This is a proposed move to September 1, 2024 from the parliamentary standing committee. NMG Benefits, however, is still committed to the March 1, 2024, effective date as previously stated by Parliament, until official notice of any date change is given by Treasury,” Masencamp said.