Pension Funds Amendment Act is one of the legislative pillars of the two-pot retirement system
21 July 2024 - 15:35
UPDATED 21 July 2024 - 17:07
byLinda Ensor
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From September, those saving for retirement will see their funds separated into a two-pot system. Picture: 123RF
President Cyril Ramaphosa has signed into law the Pension Funds Amendment Bill that is key for the implementation of the two-pot retirement system, which takes effect on September 1.
The signature into law of the bill gives legal certainty to the retirement industry, which has been implementing the necessary changes. The new system will provide members of retirement funds with the ability to access part of their retirement savings without having to resign or cash out their pension funds.
The new law complements the Revenue Laws Amendment Act that was signed by Ramaphosa in June.
The Pension Funds Amendment Act amends the Pension Funds Act, the Post and Telecommunications-Related Matters Act, the Transnet Pension Fund Act and the Government Employees Pension Law.
The law provides for the introduction of the savings withdrawal benefit; the appropriate account of a member’s interest in the savings; retirement and vested components, and the deductions that may be made.
“The act requires pension funds to amend their rules, adjust their investment portfolios and prepare administrative systems for pension fund members to apply to access portions of their pension funds from 1 September 2024,” the presidency said in a statement.
The two-pot retirement system provides that from September 1 one-third of retirement contributions will be invested into a savings component and two-thirds into a retirement component that will have to remain untouched until retirement.
What is in the savings component will be available for withdrawal at any time before retirement with the minimum withdrawal amount of R2,000. Withdrawals from the savings component will be added to the individual’s taxable income and will be taxed at their marginal tax rates.
“The ability to unconditionally access amounts from the savings component will be provided without the member having to cease employment or having to resign. A member will be allowed to make a single withdrawal within a year of assessment,” the statement said.
Once a member has reached retirement age and retires, the retirement component will have to be paid in the form of an annuity.
Cosatu acting national spokesperson and parliamentary co-ordinator Matthew Parks welcomed the move.
“This will provide invaluable relief to millions of workers and their families who are drowning in debt and battling to cope with the rising costs of living,” he said.
“The pension laws were excessively inflexible, only allowing workers access to their pension funds upon retirement, losing their job or resignation. Consequently, many workers resign to cash out their entire pension funds leaving them unemployed and with no savings left.
“Cosatu is working with Treasury, Sars [SA Revenue Service], the Financial Sector Conduct Authority, Asisa [Association for Savings and Investment SA] and pension funds through Nedlac to ensure a smooth implementation on 1 September,” Parks said.
“Workers have been waiting for this relief since 2020. We dare not disappoint them. Once implementation is concluded on 1 September, further engagements will take place with government and parliament on additional critical pension reforms giving further relief to workers and their families.”
To give effect to the two-pot system retirement funds have been amending their rules.
Discovery chief commercial officer of corporate and employee benefits Guy Chennells warned that retirement funds that had not submitted their rule amendments by end-July could not be certain that their withdrawal rules would be registered and approved by the Financial Sector Conduct Authority (FSCA) before September 1.
He said that according to a FSCA communication last week only 30% of anticipated rule amendments had been received before the initial deadline July 15. The FSCA had extended the deadline to the end of July as it was still waiting for more than 350 retirement funds to submit their rule amendments.
Chennells noted amendments submitted after the end-July extension date would not be prioritised and would be subject to normal FSCA service-level agreements, and so might not be registered by September 1.
Retirement funds would not be able to allow the withdrawal of funds unless their rule amendments had been registered.
Chennells said delays “could also impact the tax approval status of retirement funds during Sars assessments”. Any contributions to retirement funds that are not tax approved would not be tax deductible.
He pointed out that finance minister Enoch Godongwana was on record anticipating a R5bn revenue windfall from taxing two-pot withdrawals in the next financial year, which indicated that the government expected hundreds of thousands to access the savings component of their retirement funds as soon as the two-pot system went live.
Without automatic electronic payments processing, payment turnaround times could be very long.
Discovery Employee Benefits expected about half of their fund members would make withdrawals from September. However, “with our straight-through automated process in place, even if 100% of our fund members make withdrawals, we will be ready”, Chennells said.
Update: July 21 2024 This story has been updated with more information and comments.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Key two-pot bill signed into law
Pension Funds Amendment Act is one of the legislative pillars of the two-pot retirement system
President Cyril Ramaphosa has signed into law the Pension Funds Amendment Bill that is key for the implementation of the two-pot retirement system, which takes effect on September 1.
The signature into law of the bill gives legal certainty to the retirement industry, which has been implementing the necessary changes. The new system will provide members of retirement funds with the ability to access part of their retirement savings without having to resign or cash out their pension funds.
The new law complements the Revenue Laws Amendment Act that was signed by Ramaphosa in June.
The Pension Funds Amendment Act amends the Pension Funds Act, the Post and Telecommunications-Related Matters Act, the Transnet Pension Fund Act and the Government Employees Pension Law.
The law provides for the introduction of the savings withdrawal benefit; the appropriate account of a member’s interest in the savings; retirement and vested components, and the deductions that may be made.
“The act requires pension funds to amend their rules, adjust their investment portfolios and prepare administrative systems for pension fund members to apply to access portions of their pension funds from 1 September 2024,” the presidency said in a statement.
The two-pot retirement system provides that from September 1 one-third of retirement contributions will be invested into a savings component and two-thirds into a retirement component that will have to remain untouched until retirement.
What is in the savings component will be available for withdrawal at any time before retirement with the minimum withdrawal amount of R2,000. Withdrawals from the savings component will be added to the individual’s taxable income and will be taxed at their marginal tax rates.
“The ability to unconditionally access amounts from the savings component will be provided without the member having to cease employment or having to resign. A member will be allowed to make a single withdrawal within a year of assessment,” the statement said.
Once a member has reached retirement age and retires, the retirement component will have to be paid in the form of an annuity.
Cosatu acting national spokesperson and parliamentary co-ordinator Matthew Parks welcomed the move.
“This will provide invaluable relief to millions of workers and their families who are drowning in debt and battling to cope with the rising costs of living,” he said.
“The pension laws were excessively inflexible, only allowing workers access to their pension funds upon retirement, losing their job or resignation. Consequently, many workers resign to cash out their entire pension funds leaving them unemployed and with no savings left.
“Cosatu is working with Treasury, Sars [SA Revenue Service], the Financial Sector Conduct Authority, Asisa [Association for Savings and Investment SA] and pension funds through Nedlac to ensure a smooth implementation on 1 September,” Parks said.
“Workers have been waiting for this relief since 2020. We dare not disappoint them. Once implementation is concluded on 1 September, further engagements will take place with government and parliament on additional critical pension reforms giving further relief to workers and their families.”
To give effect to the two-pot system retirement funds have been amending their rules.
Discovery chief commercial officer of corporate and employee benefits Guy Chennells warned that retirement funds that had not submitted their rule amendments by end-July could not be certain that their withdrawal rules would be registered and approved by the Financial Sector Conduct Authority (FSCA) before September 1.
He said that according to a FSCA communication last week only 30% of anticipated rule amendments had been received before the initial deadline July 15. The FSCA had extended the deadline to the end of July as it was still waiting for more than 350 retirement funds to submit their rule amendments.
Chennells noted amendments submitted after the end-July extension date would not be prioritised and would be subject to normal FSCA service-level agreements, and so might not be registered by September 1.
Retirement funds would not be able to allow the withdrawal of funds unless their rule amendments had been registered.
Chennells said delays “could also impact the tax approval status of retirement funds during Sars assessments”. Any contributions to retirement funds that are not tax approved would not be tax deductible.
He pointed out that finance minister Enoch Godongwana was on record anticipating a R5bn revenue windfall from taxing two-pot withdrawals in the next financial year, which indicated that the government expected hundreds of thousands to access the savings component of their retirement funds as soon as the two-pot system went live.
Without automatic electronic payments processing, payment turnaround times could be very long.
Discovery Employee Benefits expected about half of their fund members would make withdrawals from September. However, “with our straight-through automated process in place, even if 100% of our fund members make withdrawals, we will be ready”, Chennells said.
Update: July 21 2024
This story has been updated with more information and comments.
ensorl@businesslive.co.za
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