Retirement funds industry disappointed with two-pot retirement system date moved to 2024

The parliament’s finance committee decided to maintain the original implementation date of the Two-Pot Retirement System of March 1, 2024. Picture: Independent Newspapers.

The parliament’s finance committee decided to maintain the original implementation date of the Two-Pot Retirement System of March 1, 2024. Picture: Independent Newspapers.

Published Nov 26, 2023


The parliament’s finance committee decided to maintain the original implementation date of the two-pot retirement system of March 1, 2024, despite the National Treasury and industry wanting the system to be implemented in 2025.

The National Treasury had said it wanted to enable the SA Revenue Service (Sars) and the industry to get systems in place, which they say can be done only once the law has been proclaimed.

The system would permit members of retirement schemes to access their pension funds before retirement. 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 the new system, members of schemes will have three “pots”: vested (built up before the legislation becomes effective), savings, and retirement.

Old Mutual retirement reform executive Michelle Acton said while the company acknowledges the committee’s decision, it was disappointed that the proposed extension to March 1, 2025, was not approved.

She said a later implementation date would have provided the industry with more time to prepare for the significant changes involved in the Two-Pot Retirement System.

Acton said she was concerned about Old Mutual meeting the March 1 deadline, saying that readiness hinges on the government finalising and gazetting the 2022 Draft Revenue Laws Amendment Bill and the required Pension Fund Amendments, which govern the Two-Pot Retirement System.

“The government initially communicated March 1, 2024 as the implementation date. However, in the lead-up to this year’s Medium-Term Budget Policy Statement in October, the National Treasury signalled a potential postponement to March 2025.

“In 2022, we confirmed that we would be ready for the Two-Pot Retirement System on the condition that the relevant legislation was finalised expeditiously. As we approach the end of 2023, the legislation remains unfinalised, hindering our ability to fully prepare for the system’s implementation.”

Acton said that the industry is also dependent on Sars and the Financial Services Conduct Authority (FSCA) being fully ready as well, which is challenging without the Bill being gazetted.

“The industry relies on Sars to guide us on their requirements for processing early withdrawal claims. Without this critical information, we cannot complete the system modifications to handle these transactions.”

According to Acton, aside from system readiness and the need for retirement funds to amend their rules, member education and awareness is critical to the success of this new system, and with so many moving parts not finalised, this leaves the company with a considerably shorter lead time, making it more challenging for it to be ready by March 1, 2024.

“We acknowledge the government’s decision and remain committed to working closely with them to achieve the best possible outcome for all stakeholders, especially South Africans who depend on the timely availability of these funds. Our unwavering support for the Two-Pot Retirement System remains steadfast, and we are committed to delivering a robust and efficient system that benefits everyone,” Acton said.

Meanwhile, Allan Gray assurance head Richard Carter said he was concerned about what this means for the industry and investors and that there are significant risks to rushing the legislation.

“We are surprised by today’s vote in favour of bringing the two-pot implementation to less than four months from now. This is a tough ask, as most retirement funds and their administrators will simply not be ready in time. Given that consultation on the details are still in progress, and that regulation is still being finalised, we believe that moving it forward is premature. 2025 is a more sensible timeline as it gives everyone time to accommodate the changes,” he said.

Carter said that some of the changes can only be made once the regulation is finalised, because it is the legislation that governs what changes are required.

“There needs to be time for the industry to make the administrative changes and make them properly so that people retain their trust and confidence in the system. If you hurry the legislation through and rush the changes that need to be made, and you then cannot pay people what they expect, it can be dangerous and end up doing more harm than good.”

He said that the two-pot system is likely to positively change behaviour, if it delivers on its intention.

“Overall, if the idea is implemented well, it will move us in the right direction. But as with everything, the devil will be in the detail, including in the legislation,” said Carter.

He said the two-pot system would require all new contributions made to retirement funds to be split into two portions: two-thirds will be allocated to a retirement component, which must be preserved until retirement, while the remaining one-third will be allocated to a savings component, allowing one withdrawal per year before retirement.

NMG Benefits principal consultant Natasha Huggett-Henchie said the date being moved means that there's going to be a mad scramble to get everyone in line.

"There are critical issues that need to happen. The National Treasury needs to issue the Revenue Laws Amendment Bill. Another key thing is that Sars needs to decide exactly how they are going to tax all these benefits," she said.

Huggett-Henchie said she believes that the reason for the date to be moved was because next year it's election time. The government was making promises.

She said she urges all members to be patient as administrators might take time to pay them. She said fund administrators will need to communicate this.

"Members should not panic, they will be paid their money. The administrators need to communicate with their members," she said.

Huggett-Henchie said it was a good thing that the two pot system might come to effect as people needed money and having access to their funds will help indebted consumers.