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Although the president signed the Pension Funds Amendment Bill into law on the weekend to remove another legislative barrier to the implementation of the two-pot retirement system in just over six weeks, a substantial amount of work still needs to be done before pension fund members can start withdrawing a portion of their retirement savings.
Michelle Acton, retirement reform executive at Old Mutual, says Old Mutual Corporate welcomes this new law, as it allows the Financial Sector Conduct Authority (FSCA) to start approving rule amendments once gazetted. These amendments are critical for approval before funds can start paying any claims from 1 September 2024.
“There is a misconception that funds must create the pots before 1 September. The law comes into effect on 1 September and then funds can start implementing the pots and seeding them.”
Acton also warns that despite this positive development, retirement funds and administrators still have a substantial amount of work to do before they will be able to pay claims, including ensuring administration readiness and integration with Sars.
Therefore, members who are desperately waiting for this money to bail them out of their financial woes will have to be patient and not bank on the money coming being available on 1 September.
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Acton says you have to keep in mind that:
According to Acton, approximately 30% of pension fund members in the Old Mutual stable will have less than R2 000 in their savings pot and will not be able to claim. Therefore, it is important for members to assess their fund balances to see if they will qualify in September.
Old Mutual Corporate is also still waiting for the final process for the draft Revenue Second Amendment Bill to be finalised, but Acton says the signing of the Pension Funds Amendment Bill marks a significant milestone in South Africa’s retirement landscape.
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Guy Chennells, chief commercial officer of Discovery corporate and employee benefits, also warns that while many South Africans under financial pressure will be relieved to be able to dip into a portion of their retirement savings in times of crisis, funds that did not submit their rules amendments by 31 July cannot be certain that their withdrawal rules will be registered and approved by the Financial Sector Conduct Authority (FSCA) before 1 September.
He also points out that the FSCA communicated last week that 30% of rule amendments were received before the initial deadline of 15 July. The FSCA is still waiting for more than 350 retirement funds to submit their rule amendments and therefore extended the deadline to 31 July.
Rules submitted after 31 July will not be prioritised and will be subject to normal FSCA service level agreements, which means that the changes may well not be registered by September. Rules amendments remain invalid unless they are registered and approved by the FSCA and funds or administrators may not act on unapproved rules.
Chennells says Discovery submitted its rules amendments for its pension and provident umbrella funds and its retail funds in April and May 2024, with queries quickly resolved. With no outstanding issues on any Discovery fund rules amendments, he says Discovery is confident that members of all its funds will be able to access their retirement savings under the two-pot retirement system from September 2024.
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Delays resulting from funds failing to submit their new rules to the FSCA by 31 July could also affect the tax approval status of retirement funds during Sars assessments, Chennells points out. “Any contributions to retirement funds that are not tax approved will not be tax deductible. This will present a significant challenge for the members of unregistered funds.”
Another important consideration is whether your employee benefits provider can process claims on what is termed a ‘straight-through process’, he says. Straight-through is an automated electronic payment process which does not need manual intervention.
Chennells points out that the minister of finance is on record anticipating a R5 billion revenue windfall from taxing two-pot retirement system withdrawals in the next financial year. “Government clearly expects many hundreds of thousands of South Africans to access the savings component of their retirement funds as soon as the two-pot retirement system goes live.”
He says claims volumes could be 50 to 80 times higher than a normal month of exit claims in September and it will be impossible to increase staffing adequately for this. That is why some providers without a straight-through payment process could have very long payment turnaround times before savings withdrawal claims can be paid.
Discovery Employee Benefits anticipates that about half of its fund members will make withdrawals from September, but Chennells says with Discovery’s straight-through automated process in place, even if 100% of its fund members make withdrawals, it can be done.
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The next steps for the implementation of the two-pot retirement system include:
Chennells says these challenges could trip you up as a member wanting to withdraw:
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