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The president signing the Revenue Laws Amendment Bill means the signing of the Pension Funds Amendment Bill is imminent and the two-pot retirement system is confirmed to roll out as proposed on 1 September 2024.
“This legislative action signifies the final step towards the implementation of this new retirement system and effectively means that effective from 1 June 2024 there is no turning back,” Guy Chennells, chief commercial officer of Discovery Corporate and Employee Benefits, says.
“With the two-pot retirement system officially coming into effect on 1 September 2024, retirement fund administrators in particular only have a few months left to organise their affairs, particularly regarding pending legal matters, if they want to pay out their clients’ withdrawal claims promptly after 1 September.”
He emphasises that this is a crucial period for all providers to ensure they are fully prepared for the potentially unprecedented volumes of savings withdrawal requests coming their way from clients who may still be battling with financial woes in the aftermath of the Covid pandemic and the financial headwinds facing all South Africans.
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The first important deadline for retirement funds is 15 July 2024, the final date for all retirement funds to submit their rule amendments for registration and approval before 1 September. Retirement funds submitting rule amendments after 15 of July run the risk of their rule amendments not being registered in time, which will result in the delay of implementing the two-pot retirement system and paying out savings withdrawal claims.
“Failure to register rule amendments for implementation of the two-pot retirement system with the Financial Services Conduct Authority (FSCA) by 1 September will mean no savings withdrawal claims can be paid from the fund,” Chennells says.
“This could also affect the tax approval status of retirement funds when Sars does its annual tax assessments. If retirement funds lose their tax approval status, it will mean that contributions to retirement funds are then no longer tax deductible and employers could have an industrial relations disaster on their hands,” he warns.
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The next important consideration is whether the provider can process claims using what is termed a’straight-through process’. Straight-through is an automated electronic payment process that does not need manual intervention.
“This is because the volumes are expected to be of unprecedented size. The minister of finance said in his 2024 Budget Speech that he anticipates a massive R5 billion revenue windfall from taxing two-pot retirement system withdrawals in the next financial year.”
Chennells says this number indicates that the government expects many hundreds of thousands of South Africans to access money from their savings component as soon as the two-pot retirement system regulation becomes effective.
“One could easily see claims volumes in September 50 to 80 times higher than a normal month of exit claims. It would not be possible to increase staffing adequately for this. Therefore, without the straight-through process for payments, providers could have very long payment turnaround times before savings withdrawal claims can be paid.”
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Chennells notes that while retirement funds and administrators have these milestones to meet, companies also need to tick a couple of boxes in order to ensure they are ready for the two-pot retirement system to kick in and ensure that their employees can get their withdrawal claims paid out if needed.
Employers should already be driving tax compliance, maintaining or updating ID or passport and phone numbers, driving digital adoption, reassessing providers, and communicating the basics. Companies must also ensure that their employees have tax numbers, which are included in the data they share with their retirement fund administrators.
“Employees will need to be registered for tax to make a withdrawal, even if they are below the tax thresholds, because Sars has confirmed that every withdrawal from the savings component will need a tax directive, and administrators will withhold marginal tax on each transaction.”
Employee details must also be correct because administrators will have to verify who is asking for a withdrawal.
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Old Mutual also welcomed the signing of the Revenue Laws Amendment Bill. “There are significant long-term benefits of this new system, which will bolster financial well-being and provide more flexibility,” Blessing Utete, managing executive of Old Mutual Corporate Consultants, says.
However, he says, the success of the two-pot retirement system hinges on thorough preparation and targeted member education.
“One of the most important points to communicate to members is when their money will be accessible. Although the legislation goes live on 1 September, it does not mean funds may be able to pay out on that date, as there are several steps that need to be implemented first. This is primarily because the allocations to the Savings Pot can only happen from 1 September onwards”.
From 1 September, members will see a reduction of 10% of the value of their retirement fund, or R30 000, as of 31 August 2024, to be allocated to their savings pot under the new system. From that point on, two-thirds of any new savings will be reserved for retirement and cannot be accessed until then.
Members of provident and provident preservation funds who were 55 or older on 1 March 2021, will have the choice of whether to opt into the new system or stay in the current system.
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Michelle Acton, retirement reform executive at Old Mutual, says payouts from this emergency pot cannot be made immediately. “Seeding calculations can only be conducted after the end of August, using the values from that month. The legislation allows for seeding calculations soon after implementation, not necessarily on that date; as a result, actual access for members will likely take place after 1 September.”
Acton says there is still a significant amount of work that funds must do to ensure they are ready for the new legislation.
What is still absolutely critical is the signing of the Pension Fund Amendment Bill as well as the finalising and signing of the Revenue Second Amendment Bill before the legislation is completely in place for implementation, Acton says.
It is also absolutely critical that Sars finalise the system requirements, as no savings pot payments can be made without a smooth tax deduction directive process.
Members will need to have their tax affairs in order in order to apply for a savings pot withdrawal, as Sars may deduct any other outstanding tax before payment is made. All members will also need a tax number to apply for a withdrawal.
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