It is unfortunate that on Tuesday, 21 November 2023, the Standing Committee on Finance in Parliament rejected National Treasury’s proposal to postpone the implementation date for the Two-Pot System to Saturday, 1 March 2025, resulting in the implementation date remaining as Friday, 1 March 2024.


Although retirement reforms are not “new” and have been proposed since 2012 in difference iterations,
many of which have been implemented, it is the pre-retirement reforms that still require implementation and attention.


What does this mean for retirement savings?

With National Treasury’s recent rejection to postpone the implementation date, it has now re-set to Friday, 1 March 2024. Any amount saved by a retirement fund member will be split into a savings and a retirement
component.


Impact on your existing retirement funds

It is proposed that as of Friday, 1 March 2024 all funds will consist of three components, a vested component, a retirement component and a savings component.

The accumulated retirement benefits as at Thursday, 29 February 2024, will form the vested component
and the current retirement regime will continue apply to this component. No further contributions can be
made to the vested component after the effective date of these changes, except for members of provident
(preservation) funds who were 55 years or older on Monday, 1 March 2021.

Contributions made on or after Friday, 1 March 2024 will be split – a maximum of one third to the savings
component with the remaining two thirds to the retirement component. Members will be allowed to make one withdrawal per tax year from the savings component (subject to prescribed minimums, capped at a max of R25000 presently).

Contributions to the retirement component cannot be accessed prior to retirement.

Why the new proposed changes

In a nutshell, these proposed amendments stems from the fact that many South African’s struggle when in retirement as they do not save sufficiently. This of course is balanced with the stark reality that people do need access to funds before retirement due to unforeseen expenses or emergencies. Being able to withdraw cash before retirement or leaving one’s employment may help these individuals in these circumstances.

The amendments therefore try and balance the need to save for one’s retirement whilst allowing a mechanism
to access cash in unforeseen circumstances.


Not as simple as it seems

When it comes to dealing with the savings component and members having access to this component,
withdrawals aren’t as straightforward as one may have initially thought, especially from a fund administrator
and trustee’s perspective.

There are in fact multiple aspects that are to be considered by administrators and trustees alike when
receiving a “withdrawal” request from members.

 

These include:

  • Members can make one withdrawal per tax year. Administrators must keep track on these.
  • Members leaving employment can do a cash withdrawal from the savings pot and vested post, on condition that not all the savings were withdrawn in that year. If the member has taken a savings
    withdrawal that year, then they can only take a second amount from their savings pot in cash, when
    they leave the fund, if they have R2 000 or less in that pot.
  • Deductions may only be made from the vested pot and retirement pot, but not the savings pot.
  • Employers who have granted housing loans, may not withdraw from their savings pot without the consent of their employer (my reading), as the employer has granted the housing loan for which the fund stood guarantee.
  • Consideration to be given to the withholding of payment of benefits in certain circumstances, example where judgment is obtained allowing the fund to withhold payments, including payments from
    a savings component.

  • Divorce orders and member spouses’ consent will need to be considered before withdrawals are
    affected by administrators.
  • Maintenance orders will need to be considered.

 

As always, the devil is in the detail
Members should bear in mind that there are consequences to withdrawing cash. These are:

  • Payment of tax on withdrawals;
  • Having less retirement income at retirement; and
  • Having less cash at retirement.

 

Conclusion

Now we wait...
When a Parliamentary committee changes a proposed law, they are required to provide the Minister of Finance with an opportunity to respond thereto. Once received, the Standing Committee on Finance will consider his response and make their final decision regarding the implementation date. National Assembly will then vote on the final amendment bill as tabled by the Standing Committee on Finance.


Update

Since the writing of the above article, it has now been agreed with SCOF that the implementation date for
the Two-Pot System has been postponed till September 2024.

Although this gives all a sign of relief, one needs to ensure that the necessary work is carried on with to
ensure ones systems and processed can cater for the new rules come September 2024.

 

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