Retirement funds that do not submit rule amendments providing for two-pot system withdrawals by the end of this month cannot be certain that their withdrawal rules will be registered and approved by the FSCA before 1 September.
On Sunday, President Cyril Ramaphosa assented to the Pension Funds Amendment Bill, which is the final piece of legislation required to enable the implementation of the two-pot retirement system.
The Pension Funds Amendment Act amends the Pension Funds Act, the Post and Telecommunications-Related Matters Act, the Transnet Pension Fund Act, and the Government Employees Pension Law.
The Act complements the enabling legislation for the two-pot system, the Revenue Laws Amendment Act, which was signed by the President on 1 June.
Pension Funds Amendment Act provides for the introduction of the savings withdrawal benefit, the appropriate account of a member’s interest in the savings, retirement, and vested components, and the deductions that may be made.
The Act requires retirement funds to amend their rules, adjust their investment portfolios, and prepare administrative systems for fund members to apply to access portions of their retirement funds from 1 September 2024.
The FSCA gave retirement funds until 15 July to submit their draft rule amendments. In a communication issued on Friday, the Authority extended the deadline to 31 July because of the large number of outstanding rule submissions.
Adri Messerschmidt, senior policy adviser at the Association for Savings and Investment South Africa, told a media briefing today that 58% of retirement funds had submitted their rule amendments by last week.
The FSCA’s Communication 24 of 2024 (RF) warns funds that rules submitted after 31 July will not be prioritised and will be subject to normal FSCA service level agreements, which means they may not be registered by September.
The communication further states that rule amendments remain invalid unless they are registered and approved by the FSCA, and funds or administrators may not act on unapproved rules.
“Funds/administrators will take responsibility for any consequences resulting from non-compliance with the legislative changes.”
Funds or administrators that cannot pay withdrawal benefits because their rules are invalid must send a communication to members explaining why they may not be allowed access to their benefits, the FSCA said.
Funds that miss the new deadline of 31 July may not be able to pay over withdrawals to members until their rules are finally registered. This means that some fund members may experience a delay in accessing their retirement savings under the two-pot system, says Guy Chennells, the chief commercial officer of Discovery Corporate and Employee Benefits.
He said Discovery submitted its rule amendments for its pension and provident umbrella funds and its retail funds in April and May, with queries quickly resolved. With no outstanding issues on any Discovery fund rules amendments, “we are confident that members of all our funds will be able to access their retirement savings under the new two-pot system from September 2024”, Chennells said in a statement.
Other reasons for delays
Delays resulting from funds failing to submit their new rules to the FSCA by 31 July “could also impact the tax-approval status of retirement funds during South African Revenue Services (SARS) assessments”, Chennells said. Any contributions to retirement funds that are not tax-approved will not be tax deductible. This will present a significant challenge for the members of unregistered funds.
Chennells said another important consideration is whether your employee benefit provider can process claims on what is termed a “straight-through process”. Straight-through is an automated electronic payment process which does not need manual intervention.
Chennells said the Minister of Finance is on record anticipating a R5-billion revenue windfall from taxing two-pot withdrawals in the next financial year. The government clearly expects many hundreds of thousands of South Africans to access the savings component of their retirement funds as soon as the two-pot system goes live.
“One could easily see claims volumes in September 50 to 80 times higher than a normal month of exit claims. It would not be possible to increase staffing adequately for this. Without a straight-through payments process, some providers could have very long payment turnaround times before savings withdrawal claims can be paid,” Chennells said.
Discovery Employee Benefits anticipates that about half of their fund members will make withdrawals from September. However, “with our straight-through automated process in place, even if 100% of our fund members make withdrawals, we will be ready”, he said.
Don’t expect a payout on 1 September
Despite the signing of the Pension Funds Amendment Act, retirement funds and administrators still have a substantial amount of work to do before they will be able to pay claims, including ensuring administration readiness and integration with SARS, said Michelle Acton, the chief customer officer: Corporate Employee Benefit Solutions at Old Mutual.
Members in a financial fix will need to be patient and not bank on the money coming on 1 September, she said.
“Seeding calculations can only be conducted after the end of August, using the values from that month. The legislation allows for setting calculations after implementation, not necessarily on that date.
“This seeding calculation, which determines the initial amounts to be allocated to different ‘pots’ or accounts based on existing retirement savings, relies on the current amount of savings in each member’s retirement account and their market value. This process could take several working days to weeks, depending on the rules set by each retirement fund,” Acton said.
“It is also important to note that only members who have more than R2 000 in their savings pot in September will be able to claim. Approximately 30% of our members in the Old Mutual stable will have less than R2 000 in their savings pot and will not be able to claim. Therefore, it is important for members to assess their fund balance to see if they will qualify in September.”
Meanwhile, the FSCA last week published the proposed conditions that “legacy” retirement annuity policies will have to meet to qualify for an exemption from the two-pot system.
