Fin24 reports that on Friday, Treasury published proposed legislation that sets new rules for the two-pot retirement system, scheduled to kick in on 1 March 2024. The two-pot system means South Africans will be able to access one-third of their retirement savings throughout their career, while two-thirds will only become accessible on retirement. The revised 2023 Draft Revenue Laws Amendment Bill and 2023 Draft Revenue Administration and Pension Laws Amendment Bill were published for public comment on Friday.

The legislation includes these proposals:

• Current retirement fund and retirement annuity members can only withdraw up to R25 000 of their existing savings from March 2024.
  “In order to limit the adverse effect on liquidity, it is proposed that seed capital [the withdrawal from existing retirement savings] should be calculated as 10% of the benefit accumulated in the ‘vested component’ as at 29 February 2024, limited to R25 000, whichever is the lesser. It is important to note that when the member of the retirement fund withdraws the seed capital, it will be subject to the normal tax rates in the hands of the member,” Treasury says. “Members of funds should be encouraged to only exercise the withdrawal option as a last resort, and to try to preserve their savings for retirement for when they retire.”

• Defined benefit fund members get different rules.
  These funds pay out an amount on an employee’s retirement according to a defined formula and don’t refer to contributions made by members.
  Defined benefit funds must allow their members to withdraw one-third of the member’s pensionable service increase, while the remaining two-thirds of the member’s pensionable service increase remains in the “retirement pot”.

• So-called legacy retirement annuity funds are excluded from the two-pot retirement system.
The exemption applies to legacy policies entered into before 1 January 2022 with the following characteristics:
– there must be an insurance component to the funds, and members share investment returns at portfolio level through reversionary bonuses, with no concept of a fund value; and
– on termination of the policy, the member will be subject to early termination charges and clawback provisions.
“The inclusion of the legacy retirement annuity fund policies in the two-pot retirement system would require a re-design of these historically acquired legacy retirement annuity fund policies,” Treasury said.

• In the new legislation, the word “pot” is replaced by “component“.
This is the first phase of the legal implementation of the two-pot system. The second phase will deal with allowances for retrenched workers who have no alternative income. The deadline for public comments is 15 July. National Treasury and SARS will then engage stakeholders through workshops to discuss their comments. 

by Helena Wasserman