Two pots_ Treasury will want to prevent ‘a run on the bank’

Treasury unveils proposals for two-pot retirement system

National Treasury has published a discussion paper, for public comment, on the two-pot system for retirement savings, which will allow for limited pre-retirement withdrawals, and on mandatory retirement savings for all employed and self-employed persons.

It also published a discussion paper on the governance of umbrella funds.

Treasury’s proposal for the two-pot system is that one-third of contributions from the date of implementation will go into an accessible retirement fund account and the other two-thirds will go into an account that must be preserved until retirement.

It proposes that the system includes retirement annuity funds, pension preservation funds and provident preservation funds, and defined-benefit funds (including the GEPF).

“Including RAs in the two-pot system would mean that pension funds, provident funds and RAs would all be identical in terms of tax treatment, pre-retirement preservation and post-retirement preservation,” the paper says.

The inclusion of the GEPF will be dependent on public sector funds falling under the ambit of the FSCA through the Conduct of Financial Institutions legislation and the Pension Funds Act, Treasury says.

Treasury says allowing access to one-third of future contributions at any time and removing the ability to withdraw the full amount upon resignation will eliminate the incentive for members to quit their jobs to access retirement funds.

“Greater accessibility and flexibility could also encourage more savings into retirement funds.”

The paper also proposes that:

  • The accessible portion will be available at any time (but can only be withdrawn at most once a year, depending on a fund’s ability to effect withdrawals and subject to a minimum value of, say, R2 000), which would assist households if they needed funds for emergencies, without resigning to obtain those resources.
  • The withdrawing member will incur the cost of a withdrawal so that non-withdrawing members do not subsidise the cost of those withdrawing.
  • A withdrawing member will have to update his member details with the fund and whatever details would be necessary to effect a withdrawal.
  • A member may be required to undergo retirement benefit counselling or financial awareness before a withdrawal is undertaken.

A withdrawal from a retirement fund reduces members’ retirement savings, and they should be encouraged to increase their future retirement savings to replace what is being withdrawn – for example, by increasing their monthly contributions after a year, the paper says.

Treasury says the treatment of vested rights on amounts accumulated by the date on which the two-pot system is implemented is still under consideration, and it welcomed comments and options on how vested rights can be protected.

The paper discusses the implications of possibly allowing members to have immediate access to 10% (up to R25 000) of their retirement fund assets, but it does not make any firm proposals.

It also sets out various options for the taxation of retirement fund contributions and withdrawals under the two-pot system.

The “Two-pot system retirement proposal and auto enrolment” discussion paper can be downloaded from Treasury’s website.

Auto-enrolment of formal sector workers

A large number of workers are not covered by any retirement scheme, because they either work in sectors of the economy that are non-unionised or are temporary or contract workers or work in the gig economy. About 30% of workers in the formal sector are currently not participating in a retirement fund, Treasury says.

The government therefore proposes introducing auto-enrolment to cover a broader spectrum of all formal employees, thereby improving retirement coverage and providing group risk cover for such employees and enabling workers to build a “nest egg” for retirement.

The government intends to introduce legislation to compel all employers to deduct contributions to an occupational fund or another approved fund for all their employees, Treasury says.

Governance problems with umbrella funds

In its “Governance of umbrella funds” discussion paper, Treasury says it wants to engage in consultations with stakeholders on measures to improve the governance of multi-employer funds – particularly commercial umbrella funds – to further protect members’ interests.

Treasury says it is concerned about the consequences of poor governance on member outcomes. The governance challenges include the over-dependence of board members on product and service providers for advice and conflicts between loyalties to members and to those who elected or appointed the board members.

The rules of some funds also constitute an impediment to sound fund governance, management, and administration because they tie the funds to specific service providers.

Some rules even compel members to remain enrolled in those funds when they, and their employers, are convinced that better value for money could be obtained elsewhere.

The closing date for comments on both papers is 31 January 2022. Comments must be sent to

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