Two-pot Retirement System: Ncop Passes Pension Funds Amendment Bill

The two-pot retirement system is one step closer to implementation on 1 September this year after the NCOP passed the Pension Funds Amendment Bill on Thursday with changes that clear up some discrepancies.

The objective of the Bill is to ease the financial pressure on South Africans by allowing them to access their pension savings before retirement.

The National Assembly passed the Pension Funds Amendment Bill in March, taking the first step to change the pension fund system in South Africa that will give members access to a small portion of their retirement savings, but even more important ensure that they do not cash out their pensions before retirement, leaving them without sufficient funds to retire comfortably.

The Bill aims to amend the Pension Funds Act to introduce a savings withdrawal benefit and with the Revenue Laws Amendment Bill will establish the two-pot retirement system that will come into effect on 1 September this year to support long-term retirement savings while offering flexibility to help fund members in financial distress.

The National Assembly and NCOP amendments to the Bill will ensure that government employees, as well as employees of the Transnet, Post Office and telecommunications pension funds are included in the two-pot retirement system. The amendments also include important corrections to deal with divorce and the separation of assets.

After passing the Bill, the NCOP send it back to the National Assembly for concurrence as changes were made after the National Assembly passed the Bill. When the National Assembly passes the changes, the Bill will go to the president for signature.

Pension funds and their administrators have already started to apply for rule amendments with the Financial Sector Conduct Authority (FSCA) and change their systems to implement the two-pot retirement system. They also have to ensure that they educate their members on how savings.

While pensions funds and pension fund administrators have praised the Bill because it will ensure that people do not cash out their pensions before retirement, there is concern that people do not understand the implication, such as paying tax when they withdraw from their funds.

Michelle Acton, retirement reform executive at Old Mutual, says the two-pot retirement system will be a massive change to the pension system in South Africa and bring the country in line with other countries.

Although members are mainly concerned with having the two-pot retirement system implemented as soon as possible because they want access to their funds, Acton says the main reason to be excited about the coming implementation is that it will ensure that people preserve their retirement funds until they retire and not resign to get access to their retirement savings.

Acton says according to Old Mutual statistics more than 90% of retirement fund members exercise the option to withdraw all of their retirement savings when they change jobs instead of transferring the money to a preservation fund, a new fund or just leaving it invested with the original fund.

While she says she believes that Old Mutual will be ready by 1 September and has already submitted its rules to the FSCA, she points out that pension fund members do not understand the two-pot retirement system at all and therefore a lot of work still needs to be done to ensure that they do over the next five months.

Administrators are also concerned that there is not enough time to get ready for the implementation of the two-pot retirement system.

Rael Bloom, product development actuary at Coronation, said earlier the deadline remains challenging due to several key issues that must be resolved, including:

• Sars must adjust its systems and processes to accommodate the tax requirements.
• The Financial Services Conduct Authority (FSCA) must approve enabling rule amendments for all retirement funds affected.
• Administrators must make necessary system upgrades and adjustments to meet the requirements of the new system.
• Funds must make necessary preparations, such as ensuring that they have the correct bank details for all members.
• Member education about the new system must be conducted to help members understand how the new two-pot system works, dispel any myths about it and clarify what will happen to the accumulated savings pots.

He said if the system is not implemented properly, there is a risk of member discontent, which could undermine confidence in the retirement industry. There are three key risks that need to be carefully managed: execution risk, risks related to the initial seed capital payment and the risks to