Understanding South Africa’s new retirement system – everything you need to know

The newly-proposed “two-pot” retirement system will enable South Africans to have one of the best of each worlds, says Robert Driman and Armand Swart from Werksmans Attorneys.
The brand new retirement system will enable folks early entry to a portion of their retirement funds whereas nonetheless conserving a big portion for retirement.
The adjustments will take impact from March 2024. Nevertheless, additional draft laws was not printed in February, resulting in issues that business gamers is not going to have sufficient time to implement adjustments earlier than the deadline.
Driman and Swards checked out what South Africans must know in regards to the proposed system and its present standing.

What’s it? 
In 2022, Minister of Finance, Enoch Godongwana, printed the draft income legal guidelines modification invoice that proposed vital adjustments to the current retirement system – changing the one-pot system with a two-pot system.
The brand new two-pot system will have an effect on pension funds, pension preservation funds, provident funds, provident preservation funds and retirement annuity funds (the Funds).
A “financial savings pot” and a “retirement pot” will probably be current, with members of the Funds with the ability to withdraw funds from the financial savings pots whereas the retirement pot’s funds stay untouched.

What occurs to prior financial savings? 
The retirement funds that exist previous to the implementation of the two-pot system will probably be positioned in a “vested pot.” Funds in a vested pot will nonetheless be topic to current legal guidelines.
No additional contributions might be made to the vesting pot after the two-pot system is implemented- aside from provident fund members who have been 55 years outdated or older on 1 March 2021 as their pension profit regime will stay unchanged.

How will the contributions be allotted? 
The financial savings pot will solely be allowed not more than one-third of a fund member’s retirement contributions.
Whereas at the very least two-thirds of the contributions will probably be allotted to the retirement pot.
Any contributions that aren’t allotted to the financial savings pot will probably be allotted to the retirement pot.

How will withdrawals work? 
Fund members might solely be allowed to withdraw from the pot as soon as each 12-month interval, at a minimal worth of R2,000.
The retirement fund is not going to enable for withdrawals.
On the time of retirement, the out there cash in a financial savings pot will probably be paid out in a lump sum.
Wheres, upon retirement, the accrued funds within the retirement pot have for use to purchase a retirement annuity, topic to the minimal threshold quantity required to buy an annuity.

The benefit of two-pots
Fund members can at present solely entry their pension funds or provident funds after they retire or resign from their employment.
The Nationwide Treasury checked out causes for introducing the two-pot system.
Firstly, a fund member may have entry to their funds for a selected subject. On resignation, they might have full entry to their funds, inserting their long-term financial savings in danger.
Secondly, there are fund members who’re in monetary misery and can’t entry their belongings in funding funds.
Fund members might require extra funds instantly however can solely entry them in the event that they resign.
Covid-19 lockdowns revealed the shortcomings of the present system, as many fund members have been in monetary misery however couldn’t entry their retirement funds with out resigning or through different shams – like divorce.
The brand new system offers a lifeline for fund members in monetary misery whereas guaranteeing that they preserve most of their retirement financial savings, stated Werksmans.

Doable points
Though the brand new system ought to have a optimistic impact on fund members, there will probably be an administrative burden positioned on funds.
Funds should amend their guidelines, introduce new sophisticated programs, practice workers, and educate fund members.
Funds can even have a burden of direct engagement within the present system, with fund members capable of provoke claims as an alternative of their employers.
As well as, all fund members should carry a further value.
Furthermore, funds and their directors may have a short while to arrange for the two-pot retirement system’s introduction.
Nationwide Treasury stated that the primary stage of the laws amendments for the two-pot system would happen from 1 March 2024, however failed to offer another draft laws for remark, which many within the business anticipated.
Nationwide Treasury stated that three areas that require extra work – a proposal for seed capital, legislative mechanisms to incorporate outlined profit funds equitably and legacy retirement annuity funds – will probably be addressed within the draft laws.
One other space that wants extra consideration – withdrawals from the retirement portion if one is retrenched and has no different supply of earnings – will probably be reviewed within the second please of the two-pot retirement system’s implementation.
Nationwide Treasury’s feedback indicate that the implementation will happen in two levels, leading to sophisticated piecemeal laws.

Concluding remarks
The brand new two-pot system seems to be typically welcomed, regardless of the elevated administrative burdens.
Driman and Swards stated that the brand new system will give fund members flexibility in accessing a portion of their retirement funds, whereas nonetheless guaranteeing that the aim of a retirement fund is in place.
Nevertheless, they added that the delay in additional laws locations business gamers beneath excessive stress.

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