Parliament and Treasury at odds over two-pot retirement reform implementation date

The much-lauded two-pot pension reform system should be implemented from 1 March next year, Parliament’s finance committee motivated on Tuesday – in direct opposition to a proposal from National Treasury earlier this month to delay implementation to 1 March 2025.

The committee motivated that implementation should not be delayed as this would be unfair to those who are battling with debt, and need to access their retirement savings. If it goes ahead in March 2024, retirement fund members will be able to immediately access a minimum of R2,000 or 10% of their retirement savings, capped at R25,000.

The about-face was met with consternation by the retirement funds industry, which has spent most of this year noting that administrators are unlikely to be ready for implementation by March next year.

Richard Carter, head of Assurance at Allan Gray, says there are significant risks to rushing the legislation.

“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 details 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,” says Carter.

He adds that some of the changes can only be made once the regulation is finalised because it is the legislation that governs what changes are required.

“There needs to 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 hurry the legislation through and rush the changes that need to be made, and you 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. But as with everything, the devil will be in the detail, including in the legislation,” says Carter.

Michelle Acton, retirement reform executive at Old Mutual, earlier this month commented that the additional time granted by pushing the implementation date to 2025 would provide an invaluable opportunity to pressure test systems, integrate the Sars processes, engage with customers, and ensure consumers are well informed about the upcoming changes, the process of accessing funds, and the implications of tapping into their retirement savings before reaching retirement age.

“We understand that many financially strapped South Africans will be disappointed at the delay, and we call on the government to expedite the promulgation of the legislation to create certainty and to allow for access in 2025. 

“[An] extension would allow us to fine-tune our preparations, ensuring our customers are well-prepared for the transition and informed about the consequences of accessing their retirement savings prematurely,” she said.

The two-pot system will require all new contributions made to retirement funds to be split into two portions: two-thirds will be allocated to a retirement component, which must be preserved until retirement, while the remaining one-third will be allocated to a savings component, allowing one withdrawal per year prior to retirement. DM