The passing of the Revenue Laws Amendment Bill by the National Assembly on Tuesday was a significant step towards ushering in a new era of retirement financial security for more South Africans. This is according to Michelle Acton, retirement reform executive at Old Mutual.
The Revenue Laws Amendment Bill brings changes to the retirement fund system in the country, specifically the introduction of a two-pot retirement system.
According to Parliament, the two-pot retirement system aims to provide flexibility for fund members to access their retirement savings during emergencies, without necessitating resignation.
In addition to these developments, Acton said that the industry was awaiting the gazetting of the Pension Funds Amendment Bill to provide much-needed certainty on the final version of the Two-Pot Retirement System regulations. The industry also needed the requisite South African Revenue Service (Sars) tax processes to be finalised.
Acton said: “We hope these will be finalised by the end of March. These vital steps provide the certainty the industry needs to move ahead with the finalisation of the infrastructure needed to ensure a seamless application process on September 1. These are crucial for facilitating early withdrawal claims under the new system, a process dependent on finalising the Pension Funds Amendment Bill.”
Acton's comments come following Finance Minister Enoch Godongwana’s Budget Speech this week, where he confirmed the commencement of the Two-Pot Retirement System, set to take effect on September 1, 2024.
According to Acton, under the new Two-Pot Retirement System, a “savings pot” will receive a maximum of one-third of all retirement savings and will be accessible before retirement age.
“In contrast, a ‘retirement pot’ will receive a minimum of two-thirds of all retirement savings and will only be accessible at retirement. A third ‘vested pot’ will contain all retirement savings until the implementation date and follow all current legislation,” Acton said.
Acton emphasised that from the time both laws were gazetted, retirement funds would need sufficient time to finalise building the new systems and structures required to facilitate withdrawals for members.
“As we are encouraged by the latest developments, we note that Old Mutual has already started to prepare for the new system. Up to 1 million of our fund members can come forward and claim once the system goes live. As administrators, we are working tirelessly to streamline our processes through digitisation,” said Acton.
Acton highlighted the importance of public and private sector cooperation in ensuring the successful roll-out of the Two-Pot Retirement System. “We appreciate the government on heeding our concerns and input into the new system. Together, we can ensure that the industry provides the best service to South Africans relying on these funds,” Acton said.
Pieter Albertyn, head of product solutions for retail savings at Momentum Investo, said the news on the two-pot retirement system was good as retirement annuities are highly effective savings vehicles.
“Although it is crucial to understand the impact of a withdrawal on your retirement benefit, there is a hidden opportunity,” Albertyn said: “We know retirement funds are the most tax-efficient savings vehicles available to us. Going forward retirement funds are not exclusive for retirement savings. You will also be able to save in a very tax-efficient manner for other goals like building up an emergency fund, starting a side hustle or new business, and your child’s education or self-development.”
Meanwhile, PSG Financial Services head of public policy and regulatory affairs Ronald King said: “Firstly, we agree with the Actuarial Society of South Africa that providing access to a portion of the funds, while requiring the remainder to stay invested, will result in a bigger portion of the actual fund available by the time you retire. The issue is that when people need money, they resign to access the full retirement fund and end up using all of it which puts them in a worse position, with no funds left to access.
“Secondly, in the past, many investors would've had to be persuaded to invest in retirement products, whereas now that there’s a portion accessible, it makes the product more attractive.
“We do, however, foresee a lot of additional admin on the bigger funds to manage the initial rush to access the fund seeding, as well as the annual management of withdrawals, which might have an impact on the cost of some of the funds. There’s also still uncertainty on exactly how the fixed benefit fund will manage this transition, but this is yet to unfold,” he said.
In conclusion, King said PSG was widely supportive of the two-pot retirement system and believes it would have a positive effect in offering flexibility for fund members to access their retirement savings in case of emergencies.
PERSONAL FINANCE