When asked by the host on a talk show what the African equivalent of the Spanish word mañana is, the guest from our continent answered: “We do not have any word that describes that kind of urgency.”
This perception appears to be borne out by what is happening on so many fronts, including the legal world, be it successful prosecutions or amendments to the law.
Changes to the tax laws regularly run into a wide variety of obstacles despite the noblest of intentions. In its explanatory memorandum that accompanied the Taxation Laws Amendment Bill of 2013, National Treasury stated:
“…the absence of mandatory annuitisation in provident funds means that many retirees spend their retirement assets too quickly and face the risk of outliving their retirement savings. In view of these concerns, it is government’s policy to encourage a secure post-retirement income in the form of mandatory annuitisation.”
These proposals (referred to as the T-Day reforms) were originally intended to come into effect on 1 March 2015. However, there was an outcry from some parts of South Africa that the government was trying to nationalise retirement funds, which led to a delay in the introduction of some of the proposed changes. The eventual effective date was 1 March 2021.
Two-pot system for retirement savings
On 29 July, National Treasury released the 2022 Draft Revenue Laws Amendment Bill for public comment until 29 August, to introduce the “two-pot” system for retirement savings that was flagged in the Budget.
An article titled Ten top tips on the planned two-pot system for retirement savings by Joon Chong, Partner from Webber Wentzel notes:
“The planned implementation date is 1 March 2023, although Treasury said it was probably optimistic, given the necessary changes to fund rules and systems and education of members.” What they conveniently forgot to add is possible trade union reaction, which caused the major delays mentioned above.
The two-pot system will allow members of retirement funds to access up to one-third of their pension savings once a year, while preserving the other two-thirds for retirement. This is regarded as a better alternative to people resigning to access their pension or provident funds.
Two-pot hit parade
The Webber Wentzel article lists the “top 10” aspects of how the two-pot system is envisaged, according to the draft legislation. In practice, members of longer standing in retirement funds will have three pots: the “vested pot” (amounts accumulated before the implementation date), the “savings pot” (the one-third that is accessible), and the “retirement pot” (the two-thirds of contributions after 1 March 2023 that have to be preserved until retirement date).
- Existing members of funds do not have to re-enrol to access the two-pot system, as existing funds will be adapted to accommodate it. Each fund will have to review its rules to do so.
- Contributions will remain tax-deductible up to the specified caps, but any contributions that are more than 27.5% of taxable income, or R350 000 a year, can only flow into the “retirement pot”.
- All contributions and growth that are accumulated before 1 March 2023 (the “vested pot”) will have to be valued at the date immediately prior to implementation, to enable the vesting of rights. The conditions that were attached to those contributions will remain in place.
- The “savings pot” will start to accumulate from 1 March 2023, together with the “retirement pot”.
- Any amounts withdrawn from the “savings pot” will be included in the member’s taxable income for that tax year and taxed at the relevant marginal rate.
- Only one withdrawal from the “savings pot” can be made a year, at a minimum of R2 000. All or part of the amount accumulated in the “savings pot”, up to the allowable withdrawal date each year, can be withdrawn.
- On reaching retirement age, the member can add the “savings pot” to the “retirement pot” to purchase an annuity or can withdraw the full amount in the “savings pot” as cash, which will be taxed according to the retirement lump-sum tables. The lump-sum tables have more favourable tax rates (maximum of 36%) relative to the marginal rate tables that apply to annual pre-retirement withdrawals from the “savings pot” (maximum of 45%).
- On retirement, the total amount in the “retirement pot” must be used to purchase an annuity. The minimum amount that can be used to purchase an annuity is R165 000. Amounts less than R165 000 in the “retirement pot” can be withdrawn as a lump sum.
- Before retirement, it is still possible for a member to withdraw funds from the “vested pot”, and, as before, this withdrawal will be taxed according to the retirement lump-sum tables.
- Although no amounts can be transferred out of the “retirement pot”, transfers can be made into it from other pots (“vesting”, “savings” or “retirement”). No transfers can be made into the “savings pot”, unless from other “savings pots”. The “retirement pot” and the “savings pot” must be held in the same retirement fund (in other words, you cannot hold the “savings pot” in your previous employer’s fund and the “retirement pot” in your new employer’s fund).
Trade union reaction
A Business Live report by Linda Ensor notes that a major battle is in the offing between Cosatu and the retirement industry over worker access to retirement savings, with the labour federation rejecting as inadequate the limited access in the draft legislation.
Cosatu argues that workers in financial distress need immediate access to the one-third of savings accumulated up until promulgation, and a union delegation hopes to meet Treasury this week to raise their concerns. “The bill needs to provide for immediate relief to embattled workers when it comes into effect in March 2023 and not simply apply to savings going forward. Workers are in debt now and need relief now, not in the distant future. If this is not addressed, many workers will simply resign and cash out their entire pension funds as happened previously when government rushed compulsory annuitisation and ignored workers’ real struggles,” Cosatu’s Matthew Parks said. However, the retirement industry has warned that a rush of claims for immediate access to one-third of funds could not only pose liquidity problems for retirement funds, but would also be an administrative nightmare.
The mañana approach to retirement provision, as evidenced here, with accompanying threats, and critically important elections around the corner, bode ill for a government under threat of losing its mandate to rule the country for the first time since 1994.
The Merriam-Webster definition of mañana, “an indefinite time in the future”, appears to be about as accurate a prediction of when the legislation will become effective as we are likely to find.
