Retirement industry and Cosatu present clashing two-pot viewpoints to MPs

The retirement industry and trade unions are at loggerheads over the proposed implementation date for the new two-pot retirement system and the maximum amount that workers can withdraw when the system comes into effect.

The industry wants the two-pot system to be delayed by 12 to 18 months after promulgation of the law so that it has time to prepare.

Cosatu is adamant the implementation date should remain March 1 2024 as proposed.

In terms of the National Treasury’s proposal, all retirement savings after March 2024 will be split into two pots: a retirement pot into which two-thirds of contributions will be invested and can be accessed only after the age of 55, and a savings pot into which one-third of contributions will be invested.

Part of the funds accumulated before implementation of the new system (the vested component) will be accessible one-off from the savings pot immediately (seed capital) and thereafter a minimum R2,000 withdrawal can be made once a year.

The seed capital will be calculated as 10% of the benefit accumulated in the vested component limited to R25,000, whichever is the lesser.

The proposal is aimed at providing financially distressed workers with access to some of their retirement savings without having to resign from their jobs, while preserving the bulk of the savings for retirement.

The Association for Savings and Investment SA (Asisa), which supports the two-pot system, insisted in a presentation to parliament’s finance committee on Tuesday that the 2024 implementation date proposed by the Treasury is not feasible for the retirement industry.

The industry, Asisa said, needs a minimum of 12-18 months from the date of promulgation of the legislation to the implementation date to get its systems in order. The proposed implementation date, Asisa argued, is “practically unachievable”. It wants a date no earlier than March 1 2025.

“Much work is needed on the drafts of the proposed amendments and therefore considerable uncertainty about the exact requirements in respect of several aspects still exists.

“Changing systems and processes without final clarity on what is required introduces significant business risk to funds and administrators,” Asisa’s senior policy adviser, Adri Messerschmidt, told MPs.

Messerschmidt said time is needed to explain the complex new system to fund members and to educate staff; for the SA Revenue Service to change its systems; for retirement funds to change their rules and get these approved by the Financial Sector Conduct Authority; and for retirement fund administrators to change their systems and processes.

The Institute of Retirement Funds Africa (Irfa) also supported a postponement of the implementation date.

But Cosatu argued that workers have been waiting since 2020 for the introduction of a system that would give them access to their retirement savings without having to resign from their jobs to do so. Delaying this access further would be a bitter disappointment, said acting Cosatu national spokesperson and parliamentary co-ordinator Matthew Parks.

Cosatu also wants the maximum amount that can be withdrawn when the system takes effect — 10% of accumulated savings, capped at R25,000 — to be increased to an after-tax amount of R50,000.

He said the R25,000 limit has been eroded by inflation since it was first proposed. Workers are drowning in debt and need this assistance. Cosatu also wants the tax rate on withdrawals to remain as it is and not be increased to the proposed personal income tax rate.

MPs across the political spectrum were sympathetic to Cosatu’s view on the R50,000 cap, but Messerschmidt warned of the liquidity risk that would face retirement funds if the maximum amount is increased. She said Asisa strongly opposes members having this upfront access to their funds.

The proposals provide for provident fund members aged 55 years and over on March 1 2021 to remain in the vested component (the accumulated savings) only if they elect to do so. This would mean automatic inclusion in the two-pot system unless they elect otherwise.

Asisa says this should be reversed so that members opt in, not out, a view supported by Irfa. “It seems unreasonable for these members who do not wish to participate ... to be forced to have a savings component, which comprises nothing but the seeded amount, and to have to pay tax at marginal rates on that amount when they withdraw,” said Messerschmidt.

ensorl@businesslive.co.za