The 2022 Draft Revenue Laws Amendment Bill released on 29th July 2022 contains key amendments on retirement reform to move towards a “two-pot” retirement system. The amendments enable South Africans to also save for non-retirement purposes (e.g. emergencies) via their retirement funds, whilst preserving more of their savings for retirement. These amendments aim to encourage members to preserve their retirement savings by making it more flexible to accommodate unforeseen pressures that members face during the span of their working life. It makes it possible for workers not to resign from their employment merely to access their retirement funds and would have assisted members during a crisis like the COVID-19 pandemic, when many employees faced reduced salaries or were not paid at all during that time.
Government is of the view that the two-pot system option will present a better balance between ensuring preservation of retirement savings and allowing some withdrawals through a savings vehicle incorporated into the retirement funds.
The proposal is for retirement funds to direct one-third of their retirement contributions to a savings pot and two-thirds preserved in a retirement pot. Pre-implementation date vested rights will be preserved. Offering of the savings pot will be subject to fund rules i.e., will not be compulsory, meaning that a member may opt out of the savings pot. A minimum of R2 000 may be withdrawn in a 12-month cycle, with no conditions attached to withdrawals from the savings pot, subject to fund charges and tax. No pre-retirement withdrawals will be permissible from the retirement pot. Transfers of the savings and retirement pots between funds is allowed.
The proposed 2023 implementation date is optimistic, because fund rules need to be changed, there will be systems changes within retirement funds to enable the two-pot system and SARS also needs to create capacity to cater for the new pots and track withdrawals. Furthermore, retirement funds must train employees, educate fund members about the reform and its implication.
We will keep you updated with regards to this draft legislation. If you have any queries please do not hesitate to contact us in this regard.