The Association for Savings and Investment South Africa (Asisa) has announced that it was positive that the two-pot system would be implemented on September 1.
President Cyril Ramaphosa signed the Pension Funds Amendment Bill into law last Sunday. This was the last piece of legislation required for the implementation of the two-pot system, after his signing of the Revenue Laws Amendment Bill on June 1, 2024.
This means that all prerequisites for SA’s new two-pot retirement system to take effect from September 1, 2024, have successfully been concluded.
According to Parliament, it aims to provide flexibility for fund members to access their retirement savings during emergencies, without necessitating resignation.
Speaking during a media briefing earlier this week, Asisa CEO Adrian Burke said there were few people who understood the two-pot system and particularly the processes required for anybody who wanted to access their retirement savings.
“This is partly because there are many moving parts, the legislation, the regulation and the tax are still in the process of being finalised, and it’s partly because the requirements and processes are not necessarily that simple,” he said.
Asisa senior policy adviser Adri Messerschmidt said that with the new system taking effect in six weeks, members of retirement funds should ensure that they understood the implications.
Messerschmidt said there was much more certainty now that the law had been signed for the Financial Sector Conduct Authority (FSCA) to approve the fund rules before September 1. The funds could start updating their administration systems from Monday, September 2.
Messerschmidt said the only retirement fund members who would not automatically become part of the new two-pot system were:
- “Legacy” retirement annuity members.
- Members of provident or provident preservation funds who were 55 years or older on March 1, 2021, and were members of the same provident fund when the new system kicked in.
What happens on September 1?
Messerschmidt said that after the funds had updated their systems, they must do the seeding calculations for the value as of August 1, and transfer 10%, up to a maximum of 30 000, into each member’s new savings pot.
It was important to note that the balance in the savings pot must be R2 000 or more before a withdrawal could be made.
“The Revenue Laws Amendment Act states that seed capital can be allocated on or after September, but calculations must be paid based on the values as of the 31st of August, recognising the administrative complexities with changing to a new system and doing the calculations, accessing your savings. The withdrawal process will be determined by each individual's retirement fund," she said.
It was important that the retirement fund had the member’s current contact details to receive important announcements regarding the withdrawal process.
“Qualifying retirement fund members must submit application forms, and these forms must include your tax number and other information. The saving spot withdrawal is considered income, it will be taxed at marginal rates. If that additional income pushes you into a higher tax bracket, you'll have to pay tax withdrawal, and the fund administrator will apply for this tax directive on behalf of fund members.”
Messerschmidt said the tax director would say how much tax was payable and would tell the fund administrator if there was any outstanding taxes, penalties or interest owed to the South African Revenue Services (Sars), which would be deducted from the requested withdrawal amount, together with the tax payable. Withdrawals were not allowed without a tax directive from Sars.
“The fund administrator may also deduct an administration fee. These deductions will be made before the money is paid into a member’s bank account. The administrators and funds will also verify the bank accounts to prevent fraud,”
She said the process would take several days, provided there were no snags such as unverified details or incomplete application forms before the money was reflected in a member’s bank account.
“If you’re planning to make a withdrawal and you’re not yet registered as a taxpayer, you must register as a taxpayer, and then we advise that fund members must carefully weigh the pros and cons of applying for a withdrawal before submitting the application, and to get advice if they’re unsure.”
Messerschmidt warned that once Sars had issued a tax directive, you could not change your mind if you were unhappy about the tax deduction; those were Sars’s rules.
“Your full name and identity number must be the same across all records and reflect accurately on your proof of bank account document. There is a misconception that the seeding money will be automatically paid into bank accounts. That’s not true. You must go through the application process and then we advise members to be patient.”
What made the system good was that your retirement part would be preserved, so that you would not be able to deplete all your retirement savings before you retired.
“Obviously, it’s not a good thing to withdraw from your retirement fund because that means you will have less when you retire. But the accessibility is there if you have an emergency and you need access funds before you retire.”
Messerschmidt reminded retirement fund members that the money in all pots – the vested pot, the savings pot and the retirement pot – should be preserved at all costs unless there was a significant financial emergency.
“Any money withdrawn before your retirement will not only cost you in taxes and fees but will also reduce the money available to you when you retire.”
The FSCA said that only 30% of anticipated submissions (rule amendments), had been received before the initial deadline of July 15.
The authority said it was waiting for more than 350 retirement funds to submit their respective rule amendments and had, therefore, extended the deadline to July 31.
It said rules submitted after the extension date would not be prioritised, would be subject to normal FSCA service level agreements and might not be registered by September.
Discovery Corporate chief commercial officer and employee benefits Guy Chennells warned that funds that missed the deadline might not be able to pay over withdrawals to members until their rules were registered. That meant that “some South Africans may experience a delay in accessing their retirement savings under the new Two-Pot system”.
Chennells said that as a member looking to withdraw, there were several things that could trip you up:
- An incorrect ID or passport number lodged with the employer.
- An incorrect cellphone or email address lodged with the employer, preventing two-step verification.
- A bank account verification not matching the ID or passport number.
- New bank accounts. Bank accounts should be opened at least three months before application.
- An incorrect or unavailable Sars tax number.
- Unresolved disputes with Sars resulting in it not issuing a tax directive.
- Sars deducting money owed to it from the withdrawal, leaving little or none for you.
Chennells said: “While providing welcome relief for those in crisis, the primary intent of two-pot is to encourage – and reward – South Africans to save more for retirement. And keep those savings invested and untouched until retirement age.”
PERSONAL FINANCE