Two-pot retirement system: President only signed one of two bills required

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PHOTO: 123rf.com

The president signed one of the two bills required for the two-pot retirement system to work into law on Saturday. He only signed the Revenue Laws Amendment Bill and not the Pension Funds Amendment Bill.

The objectives of the Revenue Laws Amendment Bill are to amend certain definitions and provisions in the Income Tax Act.

The bill gives the implementation date of the two-pot retirement system, makes provision for seed capital, includes how to treat defined benefit funds in an equitable manner and how legacy retirement funds must be handled.

Two-pot retirement system: One of two Bills signed

According to a statement from the Presidency, Ramaphosa signed the Revenue Laws Amendment Bill of 2023, which establishes a two-pot retirement system that gives members of retirement funds access to retirement savings without having to resign or cash out their entire pension.

The amendment law introduces the two-pot retirement system to address the concerns about lack of preservation before retirement and lack of access to retirement funds by households in financial distress, according to the Presidency..

This retirement system comprises a savings and a retirement component for contributions made after 1 September 2024, while historical retirement benefits will be housed in a vested component.

Individuals will have access to amounts in the savings component before retirement for times of financial distress and the amounts in the retirement component are preserved until retirement.

Primary objective of two-pot retirement system

According to the Presidency, the primary objective of the two-pot retirement system is to provide flexibility for fund members to access their retirement savings during emergencies, without necessitating resignation.

“The reform introduced by the legislation strives to strike a balance between long-term security and immediate needs, recognising life’s unpredictability. It permits fund members to access a portion of their savings during crises, such as those seen during the COVID-19 challenges.”

These changes ensure the retirement system remains responsive to diverse financial needs, supporting both long-term financial security and immediate assistance during emergencies, while traditional retirement systems primarily focus on long-term savings, often lacking the adaptability to address immediate financial crises, the Presidency said.

“While we are continuing the task of growing our economy to create more opportunities for all South Africans and reduce the financial vulnerability affecting many individuals and households, the new retirement system offers protection and dignity to those who need it the most to overcome financial stress,” Ramaphosa stated.

Administrators should get ready for 1 September

Michelle Acton, retirement reform executive at Old Mutual, said on Friday as long as the Pension Funds Amendment Bill is signed before 1 September, the law will be in place for 1 September.

“This will mean that administrators must focus on getting ready as it is very clear the effective date will be 1 September.”

 

The Citizen / Ina Opperman