• Treasury has proposed delaying the implementation of the two-pot retirement system by one year until 1 March 2025 to give the investment industry time to implement systems needed to administer the changes.
• Treasury is also proposing raising the so-called seed capital amount to R30 000 – the portion of their pension savings workers can immediately access when the system comes into effect on 1 March 2025.
• Cosatu has slammed the proposed delay saying it will result in financially struggling workers resigning from their jobs in order to access their pension savings.
• For more financial news, go to the News24 Business front page.

National Treasury has proposed that the implementation of the so-called two-pot retirement system, which would allow people to access one-third of their pension savings before retirement, be delayed by a year.

Treasury now wants the system implemented on 1 March 2025, as opposed to the original implementation date of 1 March 2024, to give the savings and investment industry more time to grapple with the complex task of administering the changes.

The proposal was made by Treasury to Parliament’s Standing Committee on Finance on Wednesday as part of a joint feedback session with the SA Revenue Service on the 2023 Draft Revenue Laws Amendment and Draft Revenue Administration and Pension Laws Amendment Bills, which contains legislative amendments to the Pension Funds Act critical to the smooth implementation and administration of the two-pot retirement system.

“Due to the magnitude of the reform and the desire to ensure that when implemented, the system operates as seamlessly as possible, government proposes an implementation date of 1 March 2025,” Treasury said in its presentation. “This also provides sufficient time for funds and trustees to consult fund members about rule changes and to communicate clearly to members what the impacts on their future contributions will be.”

South Africans are currently able to withdraw their full pension savings, subject to taxation, when they leave a job, though this means that many people enter retirement with little to no capital once they reach retirement age.

Under the planned two-pot system it will be compulsory for retirement funds to split member contributions into two components so that one-third goes to a savings pot that is available any time to meet emergency expenses, while the remaining two-thirds will go to a retirement pot that will have to be used to purchase an annuity upon retirement.

Apart from the system’s new effective date, Treasury has also proposed increasing the amount that workers can immediately access once the two-pot system comes into effect from an initial R25 000 to R30 000. This so-called seed capital amount equates to 10% of a member’s retirement savings value on 28 February 2025 up to a maximum of R30 000. Any lump sum withdrawals from a worker’s savings pot after 1 March 2025, including seed capital, will be subject to tax should it be withdrawn before retirement. 

Chris Axelson, the Treasury’s deputy director-general for tax and financial sector policy, told News24 the proposals were still part of a draft document that was not yet in Parliament’s hands and would be tabled with the Medium-Term Budget Policy Statement (MTBPS) on 1 November 2023.

Axelson said:

Cosatu said it was “deeply disappointed” with Treasury’s proposal to delay the implementation of the two-pot system, which it said was desperately needed to provide financially struggling workers with limited early access to their savings. The labour body said the delay was merely to mollify a profit hungry investment industry and would tragically result in scores of highly indebted workers opting to resign from their jobs in order to cash out their pensions. 

Cosatu had also wanted the amount that workers can immediately access when the two-pot system comes into effect to be raised from R25 000 to R50 000, rather than Treasury’s proposal of R30 000.

“We should not be delaying this thing any further – workers are drowning in debt,” Cosatu’s acting national spokesperson Matthew Parks said in an interview. “Eventually workers are just going to choose to resign and cash out everything.”

Other proposals made by Treasury in Wednesday’s presentation are the implementation of a withholding tax process rather than a tax directive process for savings withdrawal claims with SARS to provide guidance on the correct tax rate to fund administrators. Provident fund members who were 55 years or older on 1 March 2021 will be able to voluntarily opt in to the two-pot system and will not have it automatically applied to them.

Adri Messerschmidt, a senior policy advisor at the Association for Savings and Investment South Africa (Asisa), said its members welcomed the proposed new implementation date of 1 March 2025.

“Our members believe a rushed implementation will not be in the interest of retirement fund members,” said Messerschmidt.

“The two-pot system is a fundamental change to the retirement fund landscape, and its implementation must be handled with great care. While our members have started working on the necessary process and IT changes, the final legislation must be available to clarify the uncertain elements to allow members to proceed with finalising their implementation.

“We have also taken note of the proposal to increase the cap from R25 000 to R30 000 and Asisa members will not oppose this.”