The legislative process by which the government’s well-publicised new system of saving for retirement, the two-component or “two-pot” system, becomes law, is happening slowly and not without hiccups, as the system requires amendments to a several acts governing taxation and financial services.
The National Treasury appears in a hurry to get at least the most crucial legislation passed by the end of March, with the implementation date now set for September 1.
The implementation date is a matter of consternation for the retirement fund industry, because the new system demands considerable administrative changes. The industry first agreed on March 1, 2025, but Parliament’s finance committee pushed it forward to March 1 this year. The earlier date – now just a few weeks away – has proved unrealistic in the light of Parliament’s schedule, so Spring Day is the compromise. (For a reminder of what new system will entail, read Brett Ladouce’s article, “Two-pot system: do not eat from the savings pot”)
In a recent blog, “The Two-Pot System: A New Era for South African Retirement Funds”, Rael Bloom, the product development actuary at Coronation, says that although the September implementation date provides additional time for the industry to prepare, it remains challenging because of key issues to be resolved, including:
• A raft of regulatory changes are required to give legal effect to this new system and provide clarity about the changes required. These include changes to the Income Tax Act and Pension Fund Act, which must be finalised and promulgated.
• The South African Revenue Service must adjust its systems and processes to accommodate the tax requirements.
• The Financial Services Conduct Authority must approve enabling rule amendments for all retirement funds affected.
• Administrators must make necessary system upgrades and adjustments to meet the requirements of the new system.
• Funds must make necessary preparations, such as ensuring that they have the correct bank details for all members.
• Member education about the new system must be conducted to help members understand how the new two-pot system works, dispel any myths about it and clarify what will happen to the accumulated savings pots.
Parliamentary process
Finance minister Enoch Godongwana published the Pension Funds Amendment Bill (PFA Bill) on January 30. This amends the Pension Funds Act to insert certain definitions to provide for the two-pot system and follows from the Revenue Laws Amendment Bill, which establishes the system and which is expected to be voted on in Parliament on February 20.
Bowmans financial services expert Deidre Phillips says that although it is expected that the two-pot system will take effect on September 1, “we are still awaiting the amendment to the Income Tax Act by the Revenue Laws Amendment Act”.
Phillips notes: “According to Parliament’s National Assembly and National Council of Provinces ‘Meeting of Committees’ schedule (also published on January 30), the Standing Committee on Finance (SCoF) was scheduled to meet on February 6 to receive a briefing by the National Treasury on the PFA Bill.”
She says further SCoF meetings are scheduled on:
• March 12 for public hearings to take place on the PFA Bill.
• March 19, for responses by the National Treasury to submissions received on the bill.
• March 26, for the consideration and adoption of the SCoF’s report by the National Assembly on the clause-by-clause deliberations on the bill.
First committee meeting
At the first of the scheduled SCoF meetings, on Tuesday this week, the Treasury briefed the committee on the draft bill.
Business Report’s Siphelele Dludla reported that the Treasury’s director of economic policy, Alvinah Thela, said the primary aim of the two-pot system was to ensure the preservation of the bulk (at least two-thirds) of one’s retirement savings, even when one changes jobs. But concessions needed to be made for people who were retrenched. Some of the concessions would be addressed only in a second round of reforms.
Questions were also raised about government employees, whose retirement fund, the Government Employees Pension Fund, falls under a separate act, and about the fate of retirement savings on the death of a fund member.
In light of the public participation process and the questions surrounding the two-pot system, SCoF chair Joseph Maswanganyi raised the possibility that the PFA Bill would not be processed by the end of the term of the current Parliament, which may be dissolved by the end of March to make way for the national elections.
According to the Parliamentary Monitoring Group (PMG), there are 54 bills before Parliament, and this is “in keeping with previous cycles, where a significant number of Bills were passed in the dying days of a parliamentary session”.
Comments the PMG: “Given the time constraints, it’s worth wondering if these outstanding bills will be subjected to proper scrutiny and ultimately survive any constitutional challenge.”
PERSONAL FINANCE