The National Assembly’s Standing Committee on Finance (Scof) today accepted a proposal by the Minister of Finance, Enoch Godongwana, that the two-pot retirement system be implemented on 1 September next year.
As Moonstone previously reported, on 21 November, Scof rejected National Treasury’s proposal to move out the implementation date from 1 March 2024 to 1 March 2025.
The enabling legislation for the two-pot system is the 2023 Revenue Laws Amendment Bill (RLAB), which is a money Bill. Scof was therefore required to inform the Minister of Finance of its intention to amend the legislation (that is, the implementation date) and provide him with 14 days to respond. (The 14 days exclude Saturdays, Sundays, and public holidays.)
This morning, Scof’s chairperson, Joseph Maswanganyi (ANC), disclosed that he had received a response from the minister.
In his letter, Godongwana said National Treasury has six concerns regarding the revised date of 1 March 2024.
First, the Pension Funds Amendment (PFA) Bill, which is required for the RLAB to be effective, has not been tabled in Parliament. The PFA Bill was approved by Cabinet on 29 November for submission to Parliament and will be tabled shortly. The amendments in the PFA Bill enable retirement funds to amend their fund rules to cater for the two-pot system.
The effective date of the RLAB cannot predate the implementation of the PFA Bill. Given that the PFA Bill has not yet been tabled, there is a concern that the legislative process will not be complete by 1 March 2024.
Second, even if both the PFA Bill and the RLAB can be promulgated by 1 March 2024, funds will be required to amend their fund rules and submit them to the FSCA for registration. Funds should communicate the proposed amendments and their impact to their members. Fund rules can be submitted to the FSCA for approval only after the RLAB and the PFA Bill have been enacted.
Although the FSCA can have its systems ready to receive fund rule amendments from 1 March 2024, it will take about three months from the receipt of the draft rules for the approvals to be finalised. There are 1 324 active retirement funds that will have to submit their amended rules for registration and approval.
Third, there are retirement funds that are not regulated under the Pension Funds Act but in terms of separate Acts of Parliament, and they will have to follow their own processes. In the case of the Government Employees Pension Fund (GEPF), fund rule amendments require consultations through the Public Sector Co-ordinating Bargaining Council. The GEPF is not a party to the bargaining council; therefore, these amendments will have to be proposed by the employer (represented by the Department of Public Services and Administration) for consideration by parties in the Bargaining Council. These processes are likely to extend beyond 1 March 2024 before they are completed.
Fourth, to enable withdrawals from the savings component at the date of implementation, funds must be able to apply the correct tax rate for the withholding of tax. This will be done through a directive from the South African Revenue Service (SARS). SARS has indicated that it needs at least six months after the promulgation of legislation to put such a system in place.
If the 1 March 2024 implementation date is retained, SARS will have to rely on a sub-optimal interim system, where SARS cannot guarantee quick turnaround times or the accuracy of the system. This runs the risk of withholding too much tax, which could exacerbate hardship for members, or too little which would result in a large tax liability for members on assessment at the end of the tax year.
Fifth, from an investment perspective, an implementation date of 1 March 2024 would require the fund managers of retirement funds urgently to reallocate their portfolios to meet the potential liquidity demands from the expected withdrawal requests. The need for liquidity could result in direct negative market impacts because assets will have to be disposed of over a shorter period to prepare for those increased withdrawals.
Sixth, the two-pot system is a fundamental restructuring of the retirement system. There should be a comprehensive communication and education campaign by both government and industry to inform members of the impact of the new regime on their retirement fund savings. Retirement fund members and financial advisers will need sufficient time to assimilate the implications of the new system, or members may make hastened decisions that could undermine their financial future.
Godongwana said he recognised that delaying the implementation is frustrating to retirement fund members, who expected that they would have access to a portion of their retirement fund savings by 1 March 2024, and to members of Scof, who have debated this issue over the past two years.
“However, the concerns I have raised above indicate it is highly unlikely that we will be able to achieve a smooth implementation in restructuring the retirement system by 1 March 2024.”
As a result, Godongwana proposed that implementation be delayed to 1 September 2024.
“National Treasury officials have had discussions with SARS, the FSCA, the GEPF, and the Government Pensions Administration Agency, and these institutions have indicated that a 1 September 2024 implementation date would be achievable, even though they would still be under pressure to get their internal systems and processes ready by that date.
“This implementation date is six months prior to the previously proposed delay to 1 March 2025 and would hopefully indicate that we have considered the concerns of the Standing Committee on Finance with utmost seriousness and are determined to achieve an earlier introduction of the new retirement fund system,” the letter said.
After a brief discussion, MPs from the ANC, DA, and EFF accepted the proposed implementation date of 1 September 2024.