Cyril did not sign two-pot retirement system – what now?

Although the president signed many other Bills, such as the NHI Bill, into law before the end of his presidency and even signed the Cannabis for Private Purposes Bill on the night before the election, he did not, as expected, sign the Pension Funds Amendment Bill, that makes provision for the two-pot retirement system, into law.

Only three months are left before the two-pot retirement system comes into effect on 1 September. The industry already pointed out when the date was confirmed that they might be ready for implementation.

The Pension Funds Bill must now wait for the new president to sign it into law. This position will only be filled in two weeks. The question is whether the industry and other state organs such as the Financial Sector Conduct Authority (FSCA) and Sars will be ready.

However, Michelle Acton, retirement reform executive at Old Mutual, says as long as the Pension Funds Amendment Bill is signed before 1 September, the law will be in place for 1 September. “This will mean that administrators must focus on getting ready as it is very clear the effective date will be 1 September.”

ALSO READ: No two-pot retirement system withdrawals already on 1 September

Two-pot retirement system will allow annual withdrawals

The two-pot retirement system is a reform that will allow retirement fund members to make partial withdrawals from their retirement funds before retirement, while preserving a portion that can only be accessed at retirement to help improve retirement outcomes, according to National Treasury.

Thus, members will not have to resign to access part of their retirement benefit if they are in financial distress.

The two-pot retirement system will apply to all retirement funds in the private sector as well as the public sector, except for the old generation or legacy retirement annuity policies, or funds with no active participating members, such as funds in liquidation, beneficiary funds, closed funds or dormant funds.

Pensioners and members of provident funds who were 55 years and older on 1 March 2021 who have not opted to be part of the two-pot retirement system will also be excluded.

The reform creates a savings component, a retirement component and a vested component. Only the savings component and retirement component can receive retirement contributions from 1 September, while the vested component will house retirement benefits accumulated before 1 September 2024. Investment growth will still be credited to this component, National Treasury says.

ALSO READ: Two-pot retirement system: these are the risks

What happens after 1 September?

From 1 September retirement contributions will be split into a savings component (or pot) and a retirement component. A third of total contributions will go into the savings component and two thirds of total contributions into the retirement component.

Withdrawals will have to be for a minimum of R2 000 and can only be done once a year. There is no maximum for withdrawals. Amounts in the account will still be available for withdrawal in future years and benefit from tax-free growth until a withdrawal is made.

The retirement component, on the other hand, cannot be accessed on resignation and may only be accessed at retirement. National Treasury says retrenchment cases will be dealt with in another phase of the reform process.

The retirement value accumulated by 31 August 2024, referred to as the “vested component”, will not take further contributions. However, it will remain invested by the retirement fund. Should you resign in future, your current right (vested right) to access this component or have it transferred to a preservation fund is maintained.

ALSO READ: Misconceptions about the two-pot retirement system: What you need to know

Wait before you jump

National Treasury has this advice for people about using the two-pot retirement system:

• Ensure that your retirement fund has your correct contact details. This is important so that they can contact you about the reform.
• Keep an eye out for communication from your retirement fund administrator or the trustees of the fund. They need to communicate with members about the implementation of the two-pot retirement system.
• Carefully consider your options and seek advice from an accredited financial advisor.
• Identify your long-term savings goals and plan for your future. Try to save as much as you can when you can. Unforeseen events may mean that you must adjust the plan but start with a plan. You will have more flexibility than ever before. That comes with the responsibility to protect yourself now and for the future.
• If you are a provident fund member and older than 55 on 1 March 2021, you have the option of structuring your contributions to follow the two-pot retirement system design.
• If you contributed to your retirement fund over several years, you may have access to a withdrawal from the seeding capital on implementation. However, do not make hasty decisions to take a withdrawal. It may be tempting to make a withdrawal as soon as possible. However, you will be giving up the amount drawn plus all interest on that amount in retirement.
• If you wait to withdraw money from the savings component until retirement, it will attract less tax.
• Consider whether you would rather transfer funds from your savings component to the retirement component.
• Do not let anyone pressure you to do anything that is not in your interest. While it is good to help people when one can, you have worked hard to save for retirement. The longer it remains invested, the better.
• If you need help but do not know where to start, contact your retirement fund.