Two-pot retirement system: concern about delays, but government pushes ahead

There is concern about delays in implementing the two-pot retirement system and whether consumers understand it properly, but government is pushing head and has published the proposed amendments to various pieces of legislation governing public sector pension funds.

The two-pot retirement system divides retirement fund contributions into a retirement pot and a savings pot. The retirement pot will hold two-thirds of contributions and will be strictly preserved for retirement, while consumers will be able to access the savings pot, holding the remaining one-third, before retirement to use the money for financial emergencies.

For every R100 a pension fund member contributes, R66.67 will be added to the retirement pot and the remaining R33.33 into a “savings pot” that can be withdrawn once a year, capped at R30 000.

While consumers are eager to use money from the savings pot, the industry is not so sure that the implementation date of 1 September 2024 is not too soon to get everything done, such as changing system and passing the necessary legislation.

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A significant milestone, but delays in implementation

The impending introduction of the two-pot retirement system marks a significant milestone in tackling the reality that only 6% of South Africans can currently retire comfortably, but guests at a LexisNexis South Africa masterclass webinar raised concerns about delays in implementation and whether South Africans have sufficient understanding of the system.

Matthew Parks from Cosatu, Radesh Maharaj, a retirement planning specialist and Keith Peter, advice manager at Old Mutual South Africa were panel members. They said the two-pot retirement system is garnering substantial public interest and support and is poised to balance the pressing need for short-term financial relief with the crucial objective of ensuring long-term retirement security.

They emphasised that the true efficacy of the system hinges not only on its structural design, but on the comprehensive understanding, engagement and cooperation of all stakeholders, from policymakers and industry experts to employers, employees and consumers. This, they said, is not always the case.

The need for meticulous preparation and robust legislative support to operationalise the concept effectively was also highlighted.

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Legislative approval and seamless Sars integration important

Peter emphasised the importance of speedy legislative approval, the seamless integration of Sars systems because consumers will pay tax on the amounts they withdraw and the critical role of education in ensuring a smooth transition to this new concept of retirement savings.

Parks reflected on the system’s overarching benefit for South African workers but reinforced the imperative for all stakeholders to actively engage and contribute to the system’s successful implementation.

Maharaj, on the other hand, stressed the importance of education, highlighting the distinction between retirement fund savings and short-term bank accounts and advocating long-term savings perspectives.

He said he believes that when the two-pot retirement system is correctly implemented, it will have a significant impact on society and he hopes that the legislation will help to tackle income disparities and alleviate poverty. Maharaj also called for a broader perspective in understanding the societal implications of retirement fund regulations.

Peter emphasised that individual members accessing their retirement funds must understand the long-term impact on their retirement capital. He stressed the need for members to recognise that frequent withdrawals, even as low as R2 000 annually, could significantly diminish their retirement savings.

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Members must understand consequences of early withdrawal

According to LexisNexis, this perspective underscores the responsibility of the industry to ensure members understand the consequences of accessing funds regularly, thereby mitigating potential detrimental effects on their financial futures.

Maharaj also referred to the stringent regulation of pension funds, highlighting oversight from the Financial Sector Conduct Authority (FSCA) and annual independent audits and emphasised that administrators are accountable, while the Pension Funds Adjudicator is available for members to address concerns about access or management of their retirement savings.

He agreed with Peter that the existing checks and balances in the retirement fund system are important to prevent corruption and ensure transparency and fairness for members.

Meanwhile, National Treasury published the proposed amendments to various pieces of legislation governing public sector pension funds on Monday.

“The amendments provide the necessary legislative amendments required to effectively implement the two-pot retirement system changes in public sector funds,” Treasury said.

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Proposed amendments to public sector pension funds

The proposed amendments relate to the Government Employees Pension Law, the Post and Telecommunications-related Matters Act and the Transnet Pension Fund Act.

The proposed amendments insert certain definitions to provide for the introduction of the savings withdrawal benefit, the appropriate account of a member’s interest in the savings, retirement and vested components and deductions the funds may make.

“These amendments seek to align pension laws across all sectors to ensure that pension funds can amend the fund rules and implement the two-pot retirement system on the effective date of 1 September 2024,” Treasury said.

The amendments to the public sector pension laws will be proposed for inclusion in the Pension Funds Amendment Bill, which is currently under consideration at the Standing Committee on Finance.

Parliamentary hearings on the Pension Funds Amendment Bill were held today, including these public sector pension laws amendments.