Finance portfolio committee votes to implement two-pot retirement system in 2024

The finance portfolio committee in parliament voted to implement a two-pot retirement system on 1 March 2024 instead of 1 March 2025 as National Treasury advised to give Sars and the retirement industry the opportunity to get their systems in place.

National Treasury decided a month ago to delay the implementation of the system as many financial service providers expressed concern that their systems would not be ready by March 2024.

The two-pot retirement system will allow consumers to draw some of their retirement savings before they retire to fund unexpected expenses instead of turning to expensive debt alternatives. Two thirds of contributions will go to a retirement pot that will only be accessible after normal retirement age, while the remaining one-third will go into a savings pot, allowing immediate access under certain conditions.

“Old Mutual supports the extended deadline after National Treasury and SARS provided feedback at the standing committee on finance yesterday as part of the parliamentary process. The proposed implementation date for 1 March 2024 would not have been achievable as the legislation has not yet been finalised,” Michelle Acton, retirement reform executive at Old Mutual, said after the decision.

She then pointed out that it is critical that the legislation is finalised in the next month or two to ensure that funds are ready for implementation on 1 March 2025.  

“This extension is important because it will provide an invaluable opportunity to ensure that the new system can seamlessly process the anticipated surge in applications for access to pension savings.”

National Treasury also announced at the end of October that while the seeding would remain fixed at 10%, the withdrawal cap would be increased from R25 000 to R30 000.

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Concern about rushed legislation for two-pot retirement system

Richard Carter, head of assurance at Allan Gray, says he is concerned about what this means for the industry and investors and that there are significant risks to rushing the legislation needed for the system to operate.

“We are surprised by today’s vote 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. 2025 is a more sensible timeline as it gives everyone time to accommodate the changes.”

He points out that some of the changes can only be made once the regulation is finalised, because it is the legislation that governs the required changes.

“There must be time for the industry to make the administrative changes and make them properly so that people retain their trust and confidence in the system. If you push the legislation through too fast and rush the changes that must be made and then cannot pay people what they expect, it can be dangerous and end up doing more harm than good.”

He believes that the two-pot system is likely to positively change behaviour, if it delivers on its intention.

“Overall, if the idea is implemented well, it will move us in the right direction. However, as with everything, the devil will be in the detail, including in the legislation,” Carter says.