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Two-pot postponed to September …but there’s much to do before then

IN a webinar, Batseta – a non-profit organisation focused on the interests of principal officers, trustees and fund fiduciaries within the retirement industry – made it clear just how complicated the two-pot retirement system’s implementation will be for administrators, trustees and advisers of pension funds and how much they have yet to prepare.

As such, Old Mutual Corporate senior consultant Nobuhle Mfeka said the [retirement] industry welcomed the six-month delay in the system’s implementation, as it would give stakeholders more time to hopefully implement the changes effectively.

On Monday (4 December), the National Assembly’s Standing Committee on Finance (Scopa) accepted Finance Minister Enoch Godongwana’s proposal that the implementation date shift to 1 September 2024. This comes after the committee initially rejected the National Treasury’s proposal to delay implementation to 1 March 2025.

In a letter to the parliamentary committee, Godongwana said, that because of numerous concerns, it was highly unlikely that there would be a ‘smooth implementation’ of the retirement system’s restructure by as soon as 1 March 2024.

He added that while the SA Revenue Service (Sars), the Financial Sector Conduct Authority (FSCA), the Government Employees Pension Fund (GEPF), and the Government Pensions Administration Agency (GPAA) would still be under pressure to have their internal systems and processes ready by 1 September, they had indicated it would be ‘achievable’. The institutions mentioned are all under state control.

As [retirement] funds must apply for the correct tax rate for the withholding tax for withdrawals from the savings component – which would be done via a Sars directive – Sars had said it needed a minimum of six months after the relevant legislation’s promulgation to be ready, Godongwana said.

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Much to prepare for

Mfeka said the system’s implementation would be a ‘big change’ for everyone involved (including the private sector) – including trustees, administrators and service providers, and that more changes are likely after implementation.

‘A lot of change management will be required to support members, trustees, employers and advisers with the changes,’ she said.

She summarised the high-level changes the two-pot retirement system will bring to the industry and how stakeholders must prepare, as follows:

All [retirement] funds will have three components from 1 September: vested, savings and retirement.

Future contributions will be split: a third going into a savings component (formerly called a pot) and two-thirds into the retirement component. Administrators must build systems to be able to receive and accurately reflect these contributions.

The three components have different dynamics in how and when they pay out which administrators must build into their capabilities.

In terms of the vested component, she said ‘old rules apply to old money’. As such, members with a vested pot will still be allowed to withdraw from them on changing jobs and administrators must prepare their system to allow for this.

There will be a one-off seeding event: with 10% (capped at R30,000) of a member’s existing retirement savings (as of 31 August 2024) going into their savings component, on 1 September 2024 [and available for immediate withdrawal]. Administrators’ systems must be prepared, with members’ records correctly updated.

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A new claim type (the savings component withdrawal) will be enabled and systems must be ready to receive the first withdrawal forms on 1 September. Administrators must explain to trustees and members how the withdrawal process works.

Provident fund members who were 55 years old or older on 1 March 2021 must have the new system explained to them and be given the choice to opt in or out of it, with the implications explained. ‘Should they opt in, they must be made aware that the exemption they have on 1 March 2021 will fall away. This group needs ‘special care’.

The existing withdrawal claim processes must be revised to incorporate the changes.

In her presentation, Mfeka said the complexity of the changes is exacerbated by as-yet-unfinalised regulations.

‘Administrators, trustees and service providers are waiting for three factors… the rule amendments, Sars, and the approval of rule amendments that they will submit to the FSCA.’

Nonetheless, she encouraged administrators and trustees to work as if the draft revenue laws had been approved and the act promulgated for the system to move faster on 1 September. ‘Prepare yourselves, administrators, trustees and consultants, as if this thing is still going live on 1 March.’

Savings ‘pot’ and member education

Mfeka emphasised that members must be made aware that their savings component is the lump sum they can take at retirement. Both it and the retirement component form one’s retirement savings.

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‘If you don’t use [the savings component], you don’t lose it, and it will continue to grow and be available at retirement.

‘As an aside, members do not have to motivate what their “emergency’’ is to withdraw from this pot.’

She added that members will pay tax and transactional costs when withdrawing from their savings component.

The additional administrative complexity is likely to result in costs rising in the short term, she said.

Administrators must agree on transactional costs and communicate them with trustees and members.

Mfeka said employers’ HR departments and payroll officers must also be educated to understand the changes [and incorporate them into their systems].

All members are encouraged to consult with their financial advisers.

Source: Citywire Eleanor Becker