The Association for Savings and Investment South Africa (Asisa) says it accepts the new proposed implementation date for the two-pot retirement system of 1 September, although it would have preferred 1 March 2025.
Asisa, the Congress of South African Trade Unions (Cosatu), and Old Mutual have issued statements in response to the National Assembly’s Standing Committee on Finance agreeing on Monday to the new date proposed by the Minister of Finance.
Read: Two pots: proposed implementation date is neither 1 March 2024 nor 1 March 2025
Asisa and its members were deeply concerned that hasty implementation of the two-pot system would have introduced risks with unintended consequences, such as the inequitable treatment of members of different funds, said Adri Messerschmidt, senior policy adviser at Asisa.
“While we would have preferred an implementation date of 1 March 2025, we accept the date put forward by the Minister of Finance and accepted by Parliament.
“Asisa members have worked relentlessly to prepare their processes and IT systems to implement the two-pot system. Our industry will do its best to have systems ready for a 1 September 2024 implementation date once we receive the final legislative amendments to the Income Tax Act and the Pension Funds Act and the clarification of required SARS processes.”
Cosatu said the federation and millions of workers had been heartened by the previous commitment that the two-pot system would come into effect on 1 March 2024 and were therefore “deeply disappointed” by the shift in the implementation by six months.
It is critical that Parliament, National Treasury, the South African Revenue Service, and retirement funds move with “speed and surgical efficiency” to ensure that the remaining legislative and administrative steps are expedited to ensure that no further delays occur. “The first of September 2024 must be the final date of implementation. No further delays must dare be entertained,” said Matthew Parks, Cosatu’s acting national spokesperson and parliamentary co-ordinator.
Response from Old Mutual and Allan Gray
Old Mutual said the decision to move the implementation date to 1 September 2024 was in the best interest of all stakeholders.
“This new timeline offers a balanced window for all involved parties to prepare adequately. We appreciate the government’s attentiveness to the industry’s feedback and commitment to ensuring a seamless transition for the two-pot retirement system, said Michelle Acton, the retirement reform executive at Old Mutual.
She said the decision allowed Old Mutual, alongside essential partners such as SARS, sufficient time to complete necessary system builds and procedural updates. This was particularly crucial for facilitating early withdrawal claims under the new system, a process dependent on finalising and gazetting the Draft Revenue Laws Amendment Bill and the Pension Funds Amendment Bill.
Acton emphasised that from the time the laws were gazetted, retirement funds would need at least six months to finalise building the new system and structures required to facilitate withdrawals for members.
Richard Carter, the head of assurance at Allan Gray, said 1 September next year was a reasonable compromise between March 2024 and March 2025.
“Although still tight, the additional six months will give retirement funds and their administrators more time to prepare for and accommodate the changes, while at the same time not overly delaying access to funds for members in desperate need.
“We now await the legislation, which we hope will be finalised sooner rather than later, so that everyone can be clear on exactly what changes are required and get going on implementing these,” he said.
Complexities around DB funds
Law firm Webber Wentzel said one of the complexities of the two-pot system is how it will be implemented for defined benefit (DB) funds, the largest of which is the Government Employees Pension Fund, which has more than 1.2 million members.
A major difference between defined contribution (DC) funds and DB funds is that in DC funds, it is possible to calculate the value of the contributions that have already been made by the member, but in DB funds, the final pension fund benefit will be based on the final salary of the member plus the number of years’ service.
The Revenue Laws Amendment Bill provides for the savings and retirement components (pots) of DB funds to be determined with reference to a member’s pensionable service on or after 1 March 2025, or a reasonable method of allocation as approved by the FSCA.
“The implementation of the two-pot system for DB funds must be carefully undertaken to ensure fairness to all members of each DB fund. Any necessary engagements with the FSCA by DB fund administrators will also require additional lead time from the promulgation date to implementation date, Webber Wentzel said.
