A step closer to the implementation of the two-pot retirement system
By Deirdre Phillips, partner, Bowmans.
The Minister of Finance published the much-anticipated Pension Funds Amendment Bill (B3-2024) (Pension Bill) on 30 January 2024. The purpose of the Pension Bill is to amend the Pension Funds Act, 1956 (PFA) to insert certain definitions to provide for:
- the introduction of the savings withdrawal benefit;
- the appropriate account of a member’s interest in the savings, retirement and vested components; and
- deductions that may be made.
The proposed amendments to the PFA follow from the publication of the Revenue Laws Amendment Bill (B39-2023) which establishes the so-called ‘two-pot retirement system’ It is expected that the two-pot retirement system will take effect on 1 September 2024, however, we are still awaiting the amendment to the Income Tax Act, 1962, by the Revenue Laws Amendment Act.
According to Parliament’s National Assembly and National Council of Provinces ‘Meeting of Committees’ schedule (also published on 30 January 2024), the Standing Committee on Finance (SCoF) is scheduled to meet on 6 February 2024 to receive a briefing by the National Treasury on the Pension Bill. Further, according to the Schedule, further meetings are scheduled for the ScoF on:
- 12 March 2024 (for public hearings to take place on the Pension Bill);
- 19 March 2024 (for responses by National Treasury to the SCoF to submissions received on the Pension Bill); and
- 26 March 2024 (for the consideration and adoption of ScoF’s report by the National Assembly on the clause-by-clause deliberations on the Pension Bill).
Whilst the schedule is subject to change, it appears that there is at least the intention to have the Pension Bill finalised towards the end of March 2024.
A question that has been posed several times in the retirement fund industry is whether it is possible for private and public sector retirement funds to implement the two-pot retirement system come Spring Day bearing in mind that we are yet to see the final legislation (that is to say, the Income Tax Act, 1962, as amended, which is the first step towards implementing the two-pot retirement system; the final PFA which is necessary for private sector retirement funds to give effect to the two-pot retirement system; as well as other Acts applicable to public sector retirement funds, such as the Government Employees Pension Law, the Transnet Pension Funds Act and so on).
Whilst the answer to this question largely depends on the legislative developments, there are several proactive steps that can be taken in the meantime to assist with the roll-out of the two-pot system. These include, but are not limited to:
- Understanding the proposed amendments to the Income Tax Act and the Pension Funds Act;
- Trustee training;
- Human Resources training;
- Careful drafting of rule amendments;
- Amendments to benefit guidelines/ brochures;
- Amendments to service level agreements (administration agreements, actuarial agreements, and so on);
- Amendments to benefit option forms; and
- Amendments to housing loans or housing guarantee policies.