Two-pot retirement system: Treasury proposes amendment for provident funds

National Treasury is proposing amending legislation to ensure that provident funds can make more accurate calculations about how much members can withdraw and the seeding of the savings pot under the two-pot retirement system.

In a draft explanatory memorandum about the seeding date and opt-in for provident fund members over the age of 55 on 1 March 2021, Treasury explains that the 2024 Revenue Laws Amendment Bill provides for any individual who was a member of a provident fund or provident preservation fund and was older than 55 on 1 March 2021 to remain in the same fund unless the member chooses to contribute to the ‘savings component’ within 12 months after 1 September 2024.

According to the Bill, if the member elects to opt in, a one-time seeding amount of 10% of the value of the vested component had to be calculated and the date of seeding was the last day of the month in which the election is made but capped at R30 000.

The seeding amount was then allocated from the vested component to the savings component on the last day of the month in which the election was made.

ALSO READ: Two-pot retirement system will bring major change in R3.27 trillion industry

The problem with current legislation

However, Treasury points out, that current legislation specifies that for provident fund and provident preservation fund members who were 55 or older on 1 March 2021 and chose to opt-in to benefit from the two-pot retirement system, the seeding amount must be calculated based on the value of their vested component on 31 August 2024.

Treasury says it has come to government’s attention that a number of funds drafted their rules to refer to 31 August 2024 and communicated this date to fund members. As a result, they conducted the seeding calculation on 31 August 2024 for members who already opted in.

Therefore, Treasury says, this has created an anomaly for funds as two versions were communicated to their members and incorporated into the fund’s rules. Due to the anomaly, the seeding calculation was done for some members on 31 August 2024 and for others on the last day of the month, the member elected to opt-in.

In addition, the current rules effective from 1 September 2024 do not require provident preservation members who were 55 or older on 1 March 2021 to stay in the same fund. Treasury says therefore the legislation must be changed to give clarity to retirement fund members and administrators regarding the timing aspect of the seeding amount calculation.

ALSO READ: Two-pot retirement system in SA compared to other countries

Proposal to fix the problem

Treasury proposes in the 2025 draft Revenue Laws Amendment Bill that the seeding date and calculation method allows for some level of flexibility. This proposal will allow for alignment between the law and fund rules, as communicated to retirement fund members.

Members of the public have until close of business on 17 January 2025 to comment in writing on the proposed amendments. Comments can be sent to the National Treasury’s tax policy depository at 2025AnnexCProp@treasury.gov.za  and Sars at acollins@sars.gov.za.

The minister of finance, Enoch Godongwana, will submit the 2025 draft Revenue Laws Amendment Bill to parliament for approval during his Budget speech in February.