Retirement Fund News
KEY AMENDMENTS ON RETIREMENT REFORM TO ESTABLISH A ‘TWO-POT’ RETIREMENT SYSTEM IN SOUTH AFRICA
Following intensive consultations, National Treasury recently published the proposed new draft Revenue Laws Amendment Bill for public comment that sees the establishment of a ‘two-pot’ retirement system in South Africa.
The proposed legislation contains key amendments, which will enable South Africans to save for non-retirement purposes (e.g. emergencies) via their retirement funds, whilst preserving more of their savings for retirement.
These amendments aim to encourage members to preserve their retirement savings by making it more flexible to accommodate unforeseen pressures that members face during the span of their working life, as it allows them to access one-third of their retirement savings during their careers and the two-thirds balance on retirement.
Government is of the view that the two-pot system option will present a better balance between ensuring preservation of retirement savings and allowing some withdrawals through a savings vehicle incorporated into the retirement funds.
The amendment allows for a member of a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund to withdraw one- third of their retirement savings only from their savings that will begin to accumulate from 01 March 2024, and not from their fund credit prior to this date. This will be a minimum of R2 000 in a 12-month cycle, with no conditions attached to withdrawals from the savings pot, subject to fund charges, returns and tax.
South Africa has different retirement fund vehicles available to individuals, and historically, each of these funds had a different tax treatment for contributions, alongside different rules for withdrawals.
Since 2012, the government has made fundamental reforms to the South African retirement fund regime, which include:
- Creating tax free savings account opportunities for individuals
- Harmonizing the tax treatment of contributions to the different types of funds
- Increasing preservation at retirement through annuitization
- Implementing reforms to lower charges and improving defaults, governance, and / market conduct.
The new proposed draft legislation is open for public comments until the 29 August and notes 1 March 2023 as the proposed starting date for the new regulations.
Commenting on the new draft Revenue Laws Bill, Adam Esat, Principal Officer for the Motor Industry Retirement Fund (MIRF), said,
‘MIRF supports this important initiative from National Treasury, however we do have concerns about the proposed start date of 01 March 2023, as these amendments require various changes to our systems to be accommodated.
In addition, members should also note that they will only be able to access a portion of their savings that have accumulated after 01 March 2023, and this will be subject to fund charges, returns and tax.’