South Africa’s Two-Pot Retirement System To Be Implemented in September 2024
By NNI Dafi
On Monday, 4 December 2023, South Africa’s Parliament and Treasury reached a compromise and agreed to implement the two-pot retirement system from 1 September 2024. This comes after Finance Minister Enoch Godongwana wrote a letter to Parliament’s Standing Committee on Finance, requesting a date beyond the earlier proposed implementation date of 1 March 2024. The newly proposed date falling in September of 2024 is a middle-ground compromise between Parliament’s desired date of 1 March 2024 and Treasury’s which was 1 March 2025.
Members of Parliament pushed for the two-pot system’s implementation to start in March 2024, however Minister Godongwana, for several reasons, found the date mentioned above being too early. Some legislative changes need to be made specifically the Pension Funds Amendment Bill and the 2023 Revenue Laws Amendment Bill. These bills must be passed before the two-pot system can be fully implemented.
The multitude of funds in South Africa would also require a period to amend their rules and submit them to the Financial Sector Conduct Authority to accommodate the new system.
"While the FSCA can have their internal systems ready to receive fund rule amendments from 1 March 2024, it will take approximately three months from receipt of draft rules for approvals to be finalised," he said in the letter. "There are 1 324 retirement funds [that] will all be required to submit amended rules for registration and approval."
Tax laws and machinations applicable to the two pot system would also have to be drawn up. According to the letter written by Minister Godongwana, the South African Revenue Service, “indicated that they need at least six months after the promulgation of the legislation to put a system in place to deal with applications from funds for the correct tax rate to be applied to withdrawals from the new “savings component”.”
The two-pot system will apply to several retirement regimes which are; pension funds, pension preservation funds, provident funds, provident preservation funds, and retirement annuity funds. This new system essentially splits a retirement fund into two pots, a savings pot and a retirement pot. As per the system, the savings pot will make up a third of the total retirement package while the retirement pot makes up the rest. This allows the holder of a fund to withdraw the savings pot when facing financial distress. The new system has both advantages and disadvantages. One advantage will be allowing immediate access to cash to fund members in case of an emergency. However, the disadvantages can have considerable consequences. South Africa already has a retirement fund problem with a significant number of citizens retiring with insufficient funds. Allowing fund members access to a portion of what is supposed to be their retirement funds can be detrimental in the future.