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South Africa will be the first country to pilot the two-pot retirement system. But when exactly this will happen is a mystery to everyone outside of government.
According to Dumo Mbethe, CEO of Momentum Corporate, even asset-management and insurance companies were as unsure as the man on the street as to when the legislation that will outline when and how the new system will be rolled out will come into effect.
“The two-pot retirement system was mentioned during the Budget Speech last month, but this was very brief and there was not much indication into how or when the legislation around it would be implemented,” Mbethe said.
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During his national budget announcement, Minister of Finance Enoch Godongwana said: “After further consultations, government intends to publish revised draft legislation on the ‘two-pot’ retirement system.
“This will include details on the amount that could be immediately available when the system is implemented from 1 March 2024. Any withdrawals from the accessible “savings pot” would be taxed as income in the year of withdrawal.”
Mbethe said that as such, they have not made any major progress in preparing for it. But he says that Momentum does predict that there will likely be an influx of persons wanting to make a withdrawal given the struggles people are facing in the current economic climate.
According to financial experts, the two-pot retirement system works in just this way: with two hypothetical pots. In the first pot, goes two thirds of a person’s retirement savings. In the second pot, is one third of it. The pot with the two thirds can only be accessed at retirement age. The pot with one third of the savings can be accessed any time for a rainy day.
Mbethe explained that this system was to save employees the hassle of having to resign in order to withdraw their savings for emergencies that were inevitable in life.
But no one really knows when the system will be implemented. In fact, Retirement Reform Executive at Old Mutual Michelle Acton reckons that the pension fund industry could miss the proposed 1 March 2024 deadline to be ready to implement the new two-pot pension fund system should the reforms not be finalised in the first half of 2023.
“We at Old Mutual wholeheartedly support the reforms as the most important regulations to move us towards ending old age poverty at retirement. In this context, the industry is doing all it can to prepare for implementation, but we cannot undertake any work on system development until the reforms are passed into law,” said Acton.
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She noted that the amount of work needed to ensure readiness is far-reaching, as entire new and sophisticated automated systems will have to be developed to enable fund members to efficiently access the allowed accessible portion of their savings.
Like Mbethe, Acton estimated that the new level of accessibility will lead to a 300-400% increase in claims to be processed by administrators.
“The administrative changes will be the biggest ever seen in the retirement industry in South Africa and means the need for an entirely new processing and service model.
“We will have to build a brand-new system overlayed on the existing system. This will take a massive amount of budget and resources which requires at least 12 to 18 months to build,” Acton concluded.
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