Guy Chennells | Chief Commercial Officer | Employee Benefits | Discovery | mail me |
With the President signing the Revenue Laws Amendment Bill into law on 1 June 2024, this means the signing of the Pension Funds Amendment Bill is imminent, and the Two-Pot retirement system is confirmed to roll out as proposed on 1 September 2024.
This legislative action signifies the final step towards the implementation of this new retirement system and effectively means that effective from 1 June 2024 – there is no turning back. With the new system officially coming into effect on 1 September 2024, retirement fund administrators only have a few months left to organise their affairs, particularly regarding pending legal matters, if they want to pay out their clients’ withdrawal claims promptly post 1 September.
This is a crucial period for all providers to ensure they are fully prepared for the potentially unprecedented volumes of savings withdrawal requests coming their way from clients who may still be battling with financial woes in the aftermath of the COVID-19 pandemic and the financial headwinds facing all South Africans.
What should providers be doing?
The first deadline of importance for retirement funds is 15 July 2024, which is the final date for all retirement funds to submit their rules amendments for registration if they are to be assured that their rules are registered and approved before 1 September. Retirement funds submitting rule amendments after 15 July stand the risk of their rules amendments not being registered in time which will result in the delay of implementing Two-Pot and paying out savings withdrawal claims.
Failure to register rule amendments for Two-Pot implementation with the Financial Services Conduct Authority (FSCA) by 1 September will mean no savings withdrawal claims can be paid from the Fund. This could also impact the tax approval status of retirement funds when the South African Revenue Services (SARS) does their annual tax assessments. If retirement funds lose their tax approval status, it will mean that contributions to retirement funds are then no longer tax deductible and employers could have an industrial relations disaster on their hands.
The next important consideration is whether the provider can process claims on what is termed a ‘straight-through process’. Straight-through is an automated electronic payment process which does not need manual intervention.
This is because the volumes are expected to be unprecedented. The Minister of Finance in his 2024 National Budget Speech said he is anticipating a massive R5 billion revenue wind fall from taxing Two-Pot withdrawals in the next financial year. This number indicates that government expects many hundreds of thousands of South Africans to access money from their savings component as soon as the Two-Pot regulation becomes effective. One could easily see claims volumes in September 50 to 80 times higher than a normal month of exit claims. It would not be possible to increase staffing adequately for this. And so, without the straight-through process for payments, providers could have very long payment turnaround times before savings withdrawal claims can be paid.
Many, if not most, employees will be making a withdrawal. If they have problems accessing their money, they will look to their employers for answers. This could result in very difficult labour relations issues for employers.
While retirement funds and administrators have these milestones to meet, companies also need to tick a couple of boxes to ensure they’re ready for the Two-Pot system to kick in and ensure that their employees can get their withdrawal claims paid out if needed.
What should employers be doing?
High-level list of what employers need to be doing already, or start doing right now:…
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Read the full article by Guy Chennells, Chief Commercial Officer Employee Benefits, Discovery, as well as a host of other topical management articles written by professionals, consultants and academics in the June/July 2024 edition of BusinessBrief.
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Related FAQs: Two-Pot retirement system
Q: What is the Two-Pot retirement system?
A: The Two-Pot retirement system refers to a new retirement savings approach where individuals have two separate savings pots to manage their retirement funds.
Q: How does the Two-Pot retirement system work?
A: The system consists of a vested pot and a retirement pot. The vested pot contains funds that can be withdrawn at any time, while the retirement pot is meant for long-term savings until retirement age.
Q: What are the benefits of the Two-Pot retirement system for fund members?
A: Fund members can enjoy flexibility in managing their retirement savings, as well as potential tax benefits depending on the withdrawal amount and tax rates.
Q: When was the Two-Pot retirement system implemented?
A: The new Two-Pot retirement system was introduced on 1 March 2021 as part of an initiative by the National Treasury to enhance retirement savings.
Q: Can individuals make withdrawals from both pots in the Two-Pot system?
A: Yes, individuals are allowed to make withdrawals from both the vested pot and the retirement pot, depending on their financial needs and circumstances.
Q: How does the Two-Pot retirement system impact income tax rates?
A: The system may affect income tax rates for individuals making withdrawals, as different pots may be subject to varying tax rates based on the withdrawal amount and the individual’s marginal tax rate.
Q: What are the next steps for administrators, employers, and employees in the Two-Pot retirement system?
A: Administrators, employers and employees need to familiarise themselves with the new Two-Pot system, understand its implications on retirement savings, and communicate effectively to ensure smooth implementation and compliance.
