National Treasury welcomes signing of Pension Funds Amendment Act into law

National Treasury has voiced its approval of the Pension Funds Amendment Act being signed into law by the President Cyril Ramaphosa last week.

This signals the last part of the significant amendments required to implement the two-pot system, which will start on September 1 after proclamation by the President.

The Pension Funds Amendment Act provides for certain amendments to the Pension Funds Act, the Post and Telecommunications-related Matters Act, the Transnet Pension Funds Act, and the Government Employees Pension Law, which are necessary to enable retirement funds, including public sector funds, to implement the two-pot reform.

These changes follow the related amendments to the Income Tax Act, which are contained in the Revenue Laws Amendment Act.

The main intention of the two-pot system reform is to improve South Africa’s retirement outcomes for members at retirement through the preservation of a larger portion of the retirement savings. At the same time, the reform allows some measured access in cases of financial distress without a member having to resign from employment.

Treasury said on July 30 that the new two-pot retirement system creates a more sustainable retirement fund system, while increasing flexibility to cater to the differing needs of members.

“The system will provide a welcomed relief mechanism for people in real crises to access emergency funds without resorting to loan sharks or having to quit their jobs to access their retirement savings, while ensuring a larger portion of those savings are preserved until retirement,” it noted.

The department said retirement funds and trustees were currently in the process of aligning their fund rules with the changes to the Acts and should be communicating with fund members about these rule changes and processes to be followed for savings benefit withdrawal claims.

Fund rule amendments still need to be submitted to the Financial Sector Conduct Authority for approval before implementation.

Treasury said that, currently, most funds are set to implement the new split for contributions to the two new components, constituting a savings component and retirement component, on September 1, as planned.

They will also calculate the one-off seeding capital value using the vested component, such as retirement savings accumulated before implementation date, on August 31, that will be available for transfer to the savings component and accessible to members from September 1.

However, Treasury warned that not all funds would be able to process withdrawal requests immediately on that date, as the systems required and the mechanics needed to request such withdrawals will still be new or being installed.

Funds that were ready for such withdrawals would also need some time to process requests, it advised.

“We urge fund members to seek trustworthy financial advice to consider the implications for withdrawals from the savings component. Fund members should also note that administration costs and tax at marginal rates will be deducted from such withdrawals. Members will lose out on all related future growth and the retirement benefit originally intended for those funds,” Treasury said.