The Public Servants Association, which represents more than 240 000 public sector employees, announced its disappointment with the delay in the implementation of the two-pot retirement system.
The implementation date for the two-pot retirement system may once again be moved back to 1 March 2024.
While the date of implementation had originally been set at 1 March 2024, last month the National Treasury recommended this be delayed by a year to March 2025, to allow the SA Revenue Service and the retirement industry time to prepare administrative systems.
As the Draft Revenue Administration and Pension Laws Amendment Bill is not yet signed into law, implementation by March next year gave the industry very little time to comply.
This however, led to an outcry by retirement fund members who are anxious to access their funds.
The Public Servants Association, which represents more than 240 000 public sector employees, announced its disappointment with the delay in the implementation of the two-pot retirement system.
The association said:
The reasons put forward by the Treasury for this proposed delay are the same old reasons provided by the industry last year, which led to the implementation date being postponed to 1 March 2024.
“A further delay to March 2025 will be catastrophic for the workers. The proposed delay is entirely out of touch with reality and is inconsiderate of the dire financial challenges faced by the majority of workers.
“A further delay in the implementation of the two-pot retirement system will only benefit the investment industry, which has already benefited for many years from the pension savings of the workers.
“Under the current financial difficulties, workers may be forced to explore riskier options such as borrowing money from loan sharks that charge exorbitant interest. Workers may even, out of desperation, resign from their jobs to access their pension savings.”
Due to the concerns raised by the trade unions, this week Parliament’s finance committee voted in favour of proceeding with the implementation date of the proposed two-pot retirement system from 2025 to 1 March 2024, which has left the retirement industry disappointed.
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Richard Carter, head of assurance at Allan Gray, is concerned about what this means for the industry and investors. Carter says there are significant risks to rushing the legislation.
“We are surprised by the vote [in Parliament] in favour of bringing the two-pot implementation to less than four months from now. This is a tough ask as most retirement funds and their administrators will simply not be ready in time. Given that consultations on the detail are still in progress and that regulation is still being finalised, we believe that moving it forward is premature.” Carter says:
[Implementing it in] 2025 is a more sensible timeline, as it gives everyone time to accommodate the changes.
He adds that some of the changes can only be made once the regulation is finalised, because it is the legislation that governs what changes are required.
“There needs to be time for the industry to make the administrative changes and make them properly so that people retain their trust in the system. If you hurry the legislation through and rush the changes that need to be made, and you then cannot pay people what they expect, it can be dangerous and end up doing more harm than good,” he says.
Retirement reform executive at Old Mutual, Michelle Acton, said she believes that a later implementation date would have provided the industry with more time to prepare for the significant changes involved in the new system.
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“In 2022, we confirmed that we would be ready for the Two-Pot Retirement System on the condition that the relevant legislation was finalised expeditiously. As we approach the end of 2023, the legislation remains unfinalised, hindering our ability to fully prepare for the system’s implementation.”
Acton stressed that the industry is also dependent on the South African Revenue Service (Sars) and Financial Services Conduct Authority (FSCA) being fully ready as well, which is challenging without the Bill being gazetted.
Acton stated:
The industry relies on Sars to guide us on their requirements for processing early withdrawal claims. Without this critical information, we cannot complete the system modifications to handle these transactions.
The two-pot system is likely to positively change behaviour, if it delivers on its intention, Carter adds.
“Overall, if the idea is implemented well, it will move us in the right direction. But, as with everything, the devil will be in the detail, including in the legislation,” says Carter.
READ: Personal Finance | Two-Pot Retirement System explained for first-time contributors
The two-pot system will require all new contributions made to the retirement funds to be split into two portions: two-thirds will be allocated to a retirement component, which must be preserved until retirement. The remaining one-third will be allocated to a savings component, allowing one withdrawal per year prior to retirement.
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