It seems South Africa’s policymakers have heard the retirement industry’s concerns that there was simply not enough time for the new two-pot retirement system to be fully clarified and properly implemented by March 2024.
By Rob Rose
So, just as Today’s Trustee argued in our edition last month, it has now become clear to policymakers that the new ‘two pots’ retirement systems isn’t doable by March next year. Last week, National Treasury conceded as much in Parliament.
The system itself will be no stranger to readers of this title: in a nutshell, it ensures that all retirement contributions be split into two pots — two-third will go towards a “retirement component” and the other third to a “savings component”, which can be accessed in certain circumstances.
Nobody has any quibble with the intention behind it; rather it’s the timeline that has caused sleepless nights, since the system was due to be implemented from 1 March 2024.
But, in a significant concession, National Treasury told Parliament’s standing committee on finance last week that it has now proposed 1 March 2025 as the new implementation date, to give the investment industry more time to get ready.
Treasury said 84 organisations and 258 individuals had provided their comments. “Some commentators argue that the proposed implementation date is not feasible, stating that 12-18 months is required after promulgation of legislation to implement necessary changes with respect to systems, training staff, communication and educating fund members,” said director of economic policy Alvinah Thela.
It said this response has been “accepted” and that “due to the magnitude of the reform and the desire to ensure that when implemented, the system operates as seamlessly as possible, government proposes an implementation date of 1 March 2025.”
This will allow enough time for funds and trustees to consult fund members, and let them know exactly how this changes everything. The proposal is now likely to be announced in finance minister Enoch Godongwana’s medium-term budget policy statement later today.
Explaining these changes, Chris Axelson, Treasury’s deputy director-general for tax and financial sector policy, was quoted as saying that treasury was “very nervous about rushing this approach, which could undermine the industry.”
It’s a vital concession, widely welcomed by fund managers and pension funds
themselves — if not by the trade unions.
Matthew Parks, spokesperson for labour federation Cosatu said he was “deeply disappointed by Treasury’s indifferent responses” to its proposals. He said the implementation data has been shifted repeatedly, and this extra year is clearly designed to “mollify a profit hungry industry”.
Yet Cosatu’s criticism, which is aimed at allowing workers to access money as soon as possible, fails to take into account the significant system changes that have to happen to ensure the system is implemented successfully.
Adri Messerschmidt, a senior advisor to the Association for Savings and Investment SA (Asisa), told News24 that this fundamental change to the retirement fund landscape “must be handled with great care”. But since the legislation isn’t final yet, funds needed time to be able to “clarify the uncertain elements”.
This isn’t a small concern. In a note to clients last week, Allan Gray’s Jaya Leibowitz said her company is “in the process of developing its systems and processes to cater to the new legislation”. And she said Allan Gray is “engaging with National Treasury and the SA Revenue Service around the details of the
changes that still need to be confirmed”.
Cosatu was just as irked by another proposal made by Treasury — to hike the amount that will be seeded to the new ’savings pot’ as soon as the new system is implemented, from R25,000 to R30,000. This is the sum that retirement fund members will be able to access immediately, which will be capped at 10% of the vested sum or R30,000 (in this new proposal).
The unions argued this amount is too low, since workers needed access to cash immediately, and called for it to be hiked to R50,000. Treasury said this argument had been “partially accepted”, and the higher proposed value of R30,000 is largely an “inflation adjustment” to the original 2020 number.
Parks railed against this adjustment, describing it as a “paltry increase” suggesting a “painful level of indifference to the real struggles of workers”. What’s likely to happen, he argued, is that countless highly-indebted workers would simply resign from their jobs to cash out their entire pension funds. “This is precisely what we are seeking to avoid,” he said.
While these are the most significant tweak to the law, which Treasury has proposed, there were other comments and suggestions it rejected outright — including the idea that withdrawals from the savings pot be taxed as a lower rate.
Still, the fact that the policymakers have heard the industry, which said it was
impossible to implement a radical new law by next year which was exceptionally fuzzy on the detail, is a welcome sign that the government is being sensible about South Africa’s retirement reform.