On 9 June, National Treasury and SARS published for public comment the revised 2023 Draft Revenue Laws Amendment Bill and 2023 Draft Revenue Administration and Pension Laws Amendment Bill.

These draft bills provide the necessary legislative amendments required to implement the first phase of the so-called “two-pot” retirement system, they also take into account public comments received on the 2022 Draft Revenue Laws Amendment Bill published on 29 July 2022.

Essentially, all contributions to retirement funds from 1 March 2024 will be divided into two pots. One-third of the contributions will go into the savings pot and members will be able to make one taxable withdrawal a year. Two-thirds will be paid into a retirement pot and has to be preserved until retirement and used to purchase an annuity.

The Honest Truth’s Benito Vergotine spoke to Senior Consultant at Momentum Corporate Shameer Chothia, to shed more light on the matter.

He says while much of the conversation has been around accessing your retirement savings early, people need to realise that they will not be able to access the remaining two-thirds of their pension, when they resign from a place of work.

BELOW IS THE FULL CONVERSATION: 

BENITO: Mr. Chothia, good evening and thank you so much for joining us tonight.

SHAMEER: Thanks Benito and thanks for giving us the time to be on your show.

BENITO: No, it’s an absolute pleasure. It’s an important discussion as it will change the retirement landscape so to speak. Just by way of context before we talk about the intricacies of the two-part system, essentially what is this two-part system?

SHAMEER: Yeah, I think it’s really the hot topic of the moment. And everywhere you go, it is all about access to your retirement savings. And I think that’s the message that’s coming through, but maybe just to answer your question, in short, it’s a proposal that’s been put forward by National Treasury, obviously in light of what we saw during the COVID pandemic.

There was financial difficulties, members were struggling. And one of the requests that came through was to say, consider some proposals to allow us access to money in those difficult times. And that’s where this has stemmed from.

So ultimately, it’s a creating of, like it’s called, two parts, one effectively being your retirement savings pot, and the one being your short term savings pot. One which you can access, the other one which will be for long-term preservation.

BENITO: And what are the opportunities that this new retirement system will present?

SHAMEER: Yeah, I think that’s a very interesting look at it from an opportunities perspective. I think for employers, number one, it will reduce those cases of members now resigning to get access to their money. There should not be a need for members to do that.

There will be a possibility for members to now have a legal and open opportunity to access some of their savings. It might take away from some of that behavior.

Other opportunities, it does help in the overall long-term of preservation of assets. What I mean by that is one of the components which is not spoken about enough is that while they give something in the form of access to capital, there was something that had to be tightened up on the other end and that was that everything that goes into the retirement pot, that will be preserved and ultimately will improve your retirement outcome. So that’s a big opportunity for me.

BENITO: What are the potential drawbacks of this two-pot system, Shameer?

SHAMEER: Yeah, I think that’s the biggest thing that’s on everyone’s mind is to say, well, the obvious consequence is that the more you access, the more you almost steal from yourself in a way, because you’re eating into your future income.

And linked to that is that for every time you do access that money, there’s an indirect cost to be paid, whether it be tax, whether it be additional admin costs, there’s more than what. It’s not just the easy, I want 20,000 (rand) give me 20,000.

So members must understand the cost of actually having access to that money. And that’s a big one for me. The other drawback is maybe looking at it from a – it’s more from an understanding perspective that I find it a drawback, is that the focus is on access rather than the total message of good access, strong preservation, and the drawback, I say, is more in the communication of the message rather than the actual impact of it.

BENITO: So what then is the fine print within the system that no one is talking about?

SHAMEER: I think the big one for me is the point around the locked-in retirement savings pot. A lot of the focus is on the savings pot, the short-term savings pot, which is saying you can take your money. But the one that no one is talking about is that the one that is going to strengthen our overall retirement outcomes is the preservation or the auto preservation of the retirement pot.

And what that’s going to do is it’s going to definitely work towards improving retirement outcomes. And I think more needs to be spoken about that in putting through the full message of what the two-pot system is about.

BENITO: Are you able to elaborate on that, Shameer?

SHAMEER: Yeah, sure. So, for example, I have, I’m now in the two-pot system. I have my short-term savings pot. I have my retirement savings pot. Short-term savings pot, I can access some of that money in line with the different rules that have been set up and the limits.

The one that’s not spoken about is the two-thirds of my contribution that goes into the retirement pot is actually going to be locked in there till I actually retire. So previously I would have taken that money if I resigned. Going forward that retirement pot is going to be locked.

When you resign you cannot access that money. And what that’s going to do is that when you do reach retirement you’re definitely going to have some sort of pot. Whereas previously you may have eaten into that when you left employment. So that’s a big message for me.

BENITO: And further to that, how can we strike that balance between, yes, possibly needing to access it, but also securing that, as you described, that robust retirement fund for our future?

SHAMEER: I think that it may sound like an obvious answer, but for me, it’s always the one that I emphasize is the value of advice, having good advice, having a good advisor, make use of them, help them to help you.

So go to them, speak to them, help them to tell you what is the consequence of actually accessing that money, what’s the cost of accessing that money, is it really worthwhile taking out that money, not only now in the short term but in the long term.

So, I think the biggest way of sorting that out would be through advice and through the benefit counseling, which we at Momentum Corporate have a dedicated team who provide that type of assistance. So, that could be of big benefit to members going forward.

BENITO: Lastly, Shameer, what safeguards are in place to protect individuals from potential exploitation or even mismanagement of retirement funds under this two-part system?

SHAMEER: Yeah, that’s an important one and it was just recently published, I think on 9th of June, the limits within which members will be able to operate. So, it’s not just going to be a free-for-all. So, there are limits that have been put in place.

The way it’s understood the minimum amount that will be allowed is R2,000 and the maximum which any member can take in any 12-month period will be R25,000. So, it’s not like you’re going to have total freedom on what you can take out.

It must be only once a year in a 12-month period. It must be within the limits. In that way, it will control the longer-term impact on a member’s retirement savings while still creating the opportunity for short-term access.

BENITO: And those criteria I think are quite important. Do you agree?

SHAMEER: Very important because what it means is that if a member who’s fairly new, if they’ve just started saving, they have to have at least R20,000 running in their existing savings at the date of this legislation coming into effect to be able to at least access that minimum of R2,000. So if you’ve not saved up at least R20,000, you don’t get access to your money immediately. You have to get to that point before you will get access.

Obviously there are some differentiated aspects around what happens to the money you’ve saved up until 29 February, but that would go into a lot more legalities and technicalities at this point.

BENITO: Shameer, where could our listeners find out more around what you’ve been sharing with us this evening?

SHAMEER: Yeah, so definitely look out for Momentum Corporate on social media, LinkedIn, Instagram, definitely our Momentum website, www.momentum.co.za. We have a lot of content in the form of legal updates and marketing communications. You will see a lot of that coming through from our space over the next few months.

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