National Treasury and SARS provided feedback on 25 October 2023 at the Standing Committee on Finance as part of the parliamentary process following workshops and public consultations in September about the proposed two-pot system.
The information provided below is based on the feedback given by National Treasury to the parliamentary committee. Parliamentary approval is still required, and the final legislation has not been issued yet.
Important details and clarification on certain aspects were provided:
The new proposed effective date for the two-pot system is 1 March 2025.
The initial seed capital proposal of 10% of a member’s retirement savings value on 29 February 2024, limited to a maximum of R25 000 has been revised to a maximum of R30 000. The seed capital reduces a member’s vested component and is transferred to the savings component as the starting balance.
Cash lumpsum withdrawals from the savings component after 1 March 2025, including seed capital, will be taxed at members’ marginal rates if it is withdrawn before retirement.
National Treasury proposed allowing for a withholding tax process to be implemented, rather than a tax directive process for savings withdrawal claims. This means that SARS will indicate the correct tax rate to a fund administrator for the tax deduction from a savings withdrawal claim.
Provident fund members who were 55 or older on 1 March 2021 will be able to opt-in to the two-pot system. In other words, the two-pot system will not automatically apply to these members, as they will have a choice.
Members are encouraged to keep all their retirement savings invested for retirement, as withdrawing cash from retirement savings has a financial impact, including:
paying tax on any amount withdrawn
reducing the retirement income members will receive, and
reducing the cash amount that members will have available at retirement·
Therefore, it is prudent that members save for emergencies separately instead of relying on their savings component. These include savings in money market accounts and other flexible investment savings vehicles. Members can access money from these savings as and when required. The savings component should be a last resort once other options have been exhausted.
It becomes extremely important now that members seek financial advice and plan for emergencies and make decisions about their retirement savings that are right for them. Financial advice gives members the best chance of having enough to sustain their retirement years.
Members will only be able to exercise their options once the changes become effective, which is proposed as 1 March 2025.
There is an extensive legislative process which still needs to unfold. The revised Revenue Laws Amendment Bill and amendments to the Pension Funds Act was issued in June 2023. We await a final response document from National Treasury to provide further clarification on matters raised as part of industry submissions and through the parliamentary process. It is possible that final legislation will only be available in early 2024. Industry is engaging with National Treasury, FSCA, SARS and industry bodies throughout the process.
Based on draft legislation, most of the administrators are preparing for significant changes by the effective date proposed as 1 March 2025. This includes: administration systems, processes, digital solutions and applications, member experience and communication, advice and guidance to trustees and management committees, advice, and guidance to members, as well as legal and regulatory matters, including rule amendments, solutions, and services. Retirement funds have time to fully prepare for implementation of the two-pot system.
Further information will be made available once a final response has been received by National Treasury.
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