Two-pot retirement system: pension funds worried about implementation

Pension fund administrators are worried about implementing the two-pot retirement system as it means a fundamental change to pension funds in a very short time without final legislation.

Although the National Assembly already passed the Bill, it has to go back because changes were made to it.

Adri Messerschmidt, senior policy advisor for the Association for Savings and Investment South Africa (Asisa), told a public hearing of the select committee on finance of the National Council of Provinces on Tuesday that every fund is different but all of them are working to get their systems ready on faith that the legislation will be changed in time by the implementation date of 1 September this year.

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Asisa represents the collective interests of the country’s asset managers, collective investment scheme management companies, linked investment service providers, multi-managers and life insurance companies. Pension funds are members of Asisa.

Messerschmidt said pension funds are working to get ready as if the legislation has been changed already because they cannot afford to wait for the legislation to be passed first. “They are also engaging the Financial Services Conduct Authority (FSCA) on the pension fund rule amendments that are necessary.”

Implementing two-pot retirement system is complex

She pointed out that the implementation of the two-pot retirement system is complex when it comes to administration. “1 September is a Sunday. The whole system must be changed to create four pots although it is called the two-pot retirement system. This will require a substantive administration system change.

“On 31 August, which is a Saturday, there will have to be calculations in terms of the seeding capital and the split between the savings component and the retirement component going forward and how those calculations will be made on an ongoing basis.”

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Then, she said, the funds must provide access to the savings component which will require administrative processes, completion of forms, approvals and lots of checks and balances to make sure there is no fraud before those systems are switched on 1 September.

“Everything must be carried over and before that date members must know what will be available. Therefore, there will be a run-up to that period in terms of which members will be informed how much will be available for withdrawal, probably to September, but not by 1 September as it is a Sunday.”

Much to be done by 1 September

She added that by 1 September all communications to clients must be developed and the specific rule amendments must be prepared to go to the FSCA. The systems preparations to integrate with Sars must also be done and it is “quite a lot of administrative processes that must happen”.

“The complexity around that with a fundamental change is very much business dependent but it is extremely complex and I cannot emphasise enough that our members are committed to meeting that date and doing everything in their power to make sure that their systems and processes will be ready to do that come the first of September, but again the anxiety is that they are doing all of this based on draft legislation.”

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She said pension funds need the final legislation, the rule amendments and the Sars integration and “the 1st of September is four months away”.

Political pressure to get work on Bill done

Yunus Carrim, chair of the committee, thanked National Treasury for all the work it put in to make the two-pot retirement system happen and noted that there was a “lot of political pressure to get this done”.

Dennis Ryder, DA member of the committee, was not happy with the fact that Old Mutual was quoted in the media saying that there is not enough time to get everything ready for implantation of the two-pot retirement system on 1 September.

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He said it is disappointing that nobody brought their concerns to the committee and rather take shots from the sidelines instead of including the decision makers. He also believes the input that the committee received was very superficial.

“(Iain) Williamson (CEO of Old Mutual) was talking to the media that can have no impact on the implementation date. It was a political decision and he should talk to the politicians.”

He said the committee reached out to Old Mutual but did not receive a response and that Asisa did not explain enough why the implantation date is impractical.

Old Mutual comfortable with discussions on two-pot retirement system

Asked to comment, Michelle Acton, retirement reform executive at Old Mutual, said: “We are very comfortable with the discussions held over the Pension Bill and it is great to see the attention this Bill is getting in such tight timelines.  

“We are fully supportive of the effective date of 1 September and look forward to final adoption of this piece of legislation as a critical piece that must be finalised to help us get ready for 1 September.”

Chris Axelson, deputy director-general for tax and financial sector policy at Treasury, said Treasury has met with Sars and the FSCA and both entities are working on the processes needed to be ready. Pension fund administrators also indicated that they will be ready, he said.