Old Mutual welcomes the recent signing of the Revenue Laws Amendment Bill by the President, a significant step forward for retirement savings in South Africa. The Bill paves the way for the implementation of the Two-Pot Retirement System on September 1, 2024.
“There are significant long-term benefits of this new system, which will bolster financial well-being and provide more flexibility,” says Blessing Utete, Managing Executive of Old Mutual Corporate Consultants. However, the success of the Two-Pot Retirement System hinges on thorough preparation and targeted member education.
“One of the most important points to communicate to members is when their money will be accessible. Even though the legislation goes live on 1 September, it doesn't mean funds may be able to pay out on that date as there are several steps that need to be implemented first” he said. “This is primarily because the allocations to the Savings Pot can only happen from 1 September onwards”.
From September 1, members will see a lower of 10% of the value of their retirement fund or R30,000 as of 31 August 2024 to be allocated to their savings pot under the new system. From that point on, two-thirds of any new savings will be reserved for retirement and cannot be accessed until then.
Members of Provident and Provident Preservation Funds who were 55 or older as of March 1, 2021 in that same fund, will have the choice of whether to opt into the new system or stay in the current system.
Michelle Acton, Retirement Reform Executive, explains that payouts from this emergency pot cannot be made immediately. “Seeding calculations can only be conducted after the end of August, using the values from that month. The legislation allows for seeding calculations soon after implementation, not necessarily on that date, as a result actual access for member will likely take place after 1 September” Acton said. There is still a significant amount of work that Funds need to do to ensure they are ready for the new legislation.
This seeding calculation, which determines the initial amounts to be allocated to different "pots" or accounts based on existing retirement savings, relies on the current amount of savings in each member's retirement account and their market value. This process could take several working days to weeks, depending on the rules set by each retirement fund.
“The Two-Pot system is designed to be an emergency savings vehicle, giving you that initial boost to help build your emergency savings," says Acton. "However, if you deplete it on day one, it ceases to serve as emergency savings."
What is still absolutely critical is the signing of the Pension Fund Amendment Bill, as well as the finalising and signing of the Revenue Second Amendment Bill before the legislation, is completely in place for implementation.
It is also absolutely critical that Sars finalises the system requirements, as no savings pot payments can be made without a smooth tax deduction directive process.
Members will need to have their tax affairs in order in order to apply for a Savings Pot withdrawal, and SARS may deduct any other outstanding tax before payment is made. All members will need to have a tax number to apply for a Savings Pot withdrawal.
Utete emphasises the need for all stakeholders in the industry to confront misconceptions related to the Two-Pot system and enhance financial literacy initiatives in the workplace. “We need` to significantly ramp up employee financial literacy initiatives around retirement reforms and overall financial wellbeing to facilitate a successful integration of the system,” said Utete.
“Members will also need to take the time to understand this new system, and the importance of saving for retirement,” concludes Utete.
PERSONAL FINANCE