Year’s delay for two-pot retirement system ‘unfortunate but necessary’

National Treasury’s decision to delay the implementation of the two-pot retirement system for another year is unfortunate but necessary to facilitate seamless access for consumers.

Many financial service providers expressed concern that it would be implemented in March 2024, which would give them very little time to get their systems ready.

The two-pot retirement system will allow consumers to draw some of their retirement savings before they retire to fund unexpected expenses instead of turning to expensive debt alternatives. Two thirds of contributions will go to a retirement pot that will only be accessible after normal retirement age, while the remaining one-third will go into a savings pot, allowing immediate access under certain conditions.

The tow-pot retirement system will now only be implemented in March 2025 to allow enough time for legislation to be finalised, rule amendments to be processed and member engagement to be effected, Michelle Acton, retirement reform executive at Old Mutual, says.

“Old Mutual supports the extended deadline after National Treasury and SARS provided feedback at the standing committee on finance yesterday as part of the parliamentary process. The proposed implementation date for 1 March 2024 would not have been achievable as the legislation has not yet been finalised.”

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Legislation must be finalised in time

However, Acton says, it is critical that the legislation is finalised in the next month or two to ensure that funds are ready for implementation on 1 March 2025.  

“This extension is important because it will provide an invaluable opportunity to ensure that the new system can seamlessly process the anticipated surge in applications for access to pension savings.”

Cash-strapped consumers will understandably be disappointed about the delay and Acton says Old Mutual calls on the government to expedite the promulgation of the legislation to create certainty and to allow for access to the savings in 2025. 

“This latest extension will allow us to fine-tune our preparations to ensure that our customers are well-prepared for the transition and informed about the consequences of accessing their retirement savings prematurely.”

Acton says Old Mutual has been preparing for the transition to the two-pot retirement system for the past 12 months.

“The additional time granted will provide an invaluable opportunity to pressure test our systems, integrate the Sars processes, engage with customers and ensure they are well informed about the forthcoming changes, the process of accessing funds and the implications of tapping into their retirement savings before reaching retirement age.”

Under this system, part of the funds accumulated before its implementation could be accessed as seed capital from the savings pot, which members can withdraw from annually. Initially, the regulations indicated that the seeding would be a maximum of 10% of existing savings with a cap of R25 000.

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Other changes announced for two-pot retirement system

National Treasury now announced that while the seeding would remain fixed at 10%, the withdrawal cap would be increased from R25 000 to R30 000. Acton says Old Mutual and the broader pension fund industry welcome the fact that seeding remained fixed at 10% as the increased cap would have a minimal additional impact on pension fund liquidity. 

Acton says while National Treasury clarified several areas of concern, the confirmation that intra-fund transfers between the savings pot, retirement pot and vested pot would be fully or partially allowed under the new system needed clarity.

“Intra-fund transfers presented a significant administrative burden and called for more detail to be provided in the updated regulations.”

Some of the other issues that were clarified, include:

• Defined benefit funds will get more flexibility around calculations of the contribution split.
• Regulation 28 will not be changed, as National Treasury saw no reason to do so. Regulation 28 applies to approved retirement funds, including pension, provident, preservation and retirement annuity funds.
• Provident fund members over the age of 55 (as at 1 March 2021) will have the option to opt in rather than opt out of the new two-pot retirement system.
• Pensioners, funds where there are no active members, closed and dormant funds and funds in liquidation will be excluded from the new system.
• Savings pot withdrawals will be taxed on the marginal tax rate and;
• Sars will provide the marginal rate, which will be applied by the fund releasing the money.