Two-pot retirement reform implementation moves to 1 September in ‘happy’ compromise

After several postponements and a bit of last-minute back-and-forth on an implementation date, the proposed two-pot retirement reform is set to come into effect from 1 September 2024. 

There has been a fair amount of discussion on the topic over the past six months. The initial implementation date was set for 1 March 2024; however, the financial services industry objected that this would not give them sufficient time to put all the required administrative changes in place.

Then, National Treasury revealed there were discussions about shifting the implementation date a year later to 1 March 2025 – which was met with relief from the financial services companies and howls of protest from labour unions.

Less than a month later, Parliament’s finance committee then motivated to move the implementation date back to 1 March 2024. Now it would appear the powers that be have opted to compromise by moving the implementation date to the midway point of 1 September next year.

Richard Carter, head of assurance at Allan Gray, says this is a reasonable compromise between going live in March 2024 and March 2025. 

“Although still tight, the additional six months will give retirement funds and their administrators more time to prepare for and accommodate the changes, while at the same time not overly delaying access to funds for members in desperate need. 

“We now await the legislation, which we hope will be finalised sooner rather than later, so that everyone can be clear on exactly what changes are required and get going on implementing these,” he says.

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 before retirement.

Draft legislation says that retirement fund members will be able to access “seed capital” – or a portion of their available balance – immediately on 1 September 2024. The seed capital will be a minimum of R2,000 or 10% of your savings in the “vested component” as of 29 February 2024, capped at R30,000.

This money will not be accessible without costs – withdrawals will be taxed at your income tax rate, which immediately makes withdrawals a less attractive prospect for those in the higher income tax brackets. 

Natasha Huggett-Henchie, a principal consultant at NMG Benefits, says a lot of details still need to be ironed out in the final legislation, such as whether there will be caps on administration fees for withdrawals.

“At NMG Benefits, we have our flagship umbrella fund and several smaller private funds, but the development work is the same across all of them. We are looking to make the process simpler through a WhatsApp-enabled checks process.

“This is expected to be a game changer in terms of giving members more accessibility when it comes to information about their savings. For example, they can log in, verify themselves and then view their retirement savings balance, how much is available to be withdrawn, and how much tax they would pay on that,” she says.

Michelle Acton, retirement reform executive at Old Mutual, says the new proposed implementation date would allow administrators, alongside essential partners like the SA Revenue Service, sufficient time to complete necessary system builds and procedural updates.

She said this was particularly crucial for facilitating early withdrawal claims under the new system, a process dependent on finalising and gazetting the Draft Revenue Laws Amendment Bill and the Pension Funds Amendment Bill. 

Acton underlined that from the time the laws were gazetted, retirement funds would need at least six months to finalise building the new system and structures required to facilitate withdrawals for members. DM