National Treasury has “loosened the lids” on the pots in the two-pot retirement system, agreeing to amend the draft legislation so that fund members will be able to access the savings they accumulated before the system is implemented without having to resign from their jobs.
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This was one of the key changes announced by Treasury on Tuesday, when it responded to comments on the 2022 Draft Revenue Laws Amendment Bill, which amends the Income Tax Act to create the two-pot system.
The current draft legislation reflects Treasury’s view that fund members should not be allowed to seed their savings pots with savings they accumulated prior to the implementation of the two-pot system. Savings will start to build up in the savings pot only from the implementation date. (The two-pot system will permit members to withdraw from their savings pots once every 12 months without having to resign.)
Treasury’s “no” to seeding the savings pot was rejected by, among others, Cosatu, which said that workers who were “drowning in debt” needed to have savings available to withdraw immediately the two-pot system came into effect.
This week, Treasury softened its position on seeding. This was one of three concessions in line with proposals made by Cosatu during the labour federation’s presentation to the National Assembly’s Standing Committee on Finance (Scof) last week.
Read: Two-pot retirement legislation must provide for immediate relief, says Cosatu
Treasury said it will “consider” allowing members to make a once-off transfer, into their savings pot, of the retirement savings they have accumulated prior to the implementation of the two-pot system. However, Treasury said that seeding the savings pot would be on condition that doing so did not have “adverse implications” for a fund’s liquidity.
This revision to the legislation, as well as many of Treasury’s other proposed revisions, were announced in “broad-brush” terms, and will require consultation and negotiation with stakeholders before the details are spelled out in a revised draft bill.
In a second concession – albeit partial – Treasury acceded to Cosatu’s request that fund members should be allowed to withdraw from their retirement pot when they are retrenched or “forced” to resign (because a spouse has found work in another province).
In terms of the current draft bill, members cannot make pre-retirement withdrawals from their retirement pot. The contributions and the investment growth thereon in the retirement pot must be preserved and used to buy an annuity at retirement.
Treasury now proposes that, only in the case of retrenchment, members will be allowed to make limited income-based withdrawals from their retirement pot. These withdrawals will have conditions attached:
- Members must have depleted all their savings in their savings and vested pots;
- Members must have exhausted their Unemployment Insurance Fund benefits;
- Members will have to prove they have no other source of income; and
- Instead of withdrawing a lump sum, members will receive an annuity for a limited period, perhaps up to a year.
The third “win” for Cosatu is that Treasury said the revised legislation will make it clear that the two-pot system is mandatory for all retirement funds; trustees cannot decide to opt out.
Cosatu called for the legislation to be explicit that participation in the two-pot regime will be compulsory, because it feared that some funds would opt out of the two-pot system, thereby denying members access to their savings (unless they resigned their jobs).
