IMPLEMENTATION OF “TWO-POT” SYSTEM MOVED TO MARCH 2024

In the August edition of our news update we looked at the proposed draft Revenue Laws Amendment Bill that was published by National Treasury and the South African Revenue Service on early access to retirement savings and compulsory preservation.

To summarise, the proposed “two-pot” system makes provision for a vested pot that will house the member’s accumulated savings (up to the point that the new legislation comes into effect), a savings pot that members can access once a year (these withdrawals will be taxed at the member’s marginal tax rate as per their annual income), and a retirement pot that can only be accessed by the member at retirement. Savings in the retirement and savings pots will only start to accumulate with contributions (up to one-third and two-thirds split) and growth thereon from the date of implementation of the new legislation.

Changes to the draft bill announced by National Treasury

National Treasury announced that the implementation date for the new legislation that was initially proposed for 1 March 2023 had moved to March 2024. In addition to this change, National Treasury agreed to make provision for seed finance, which would allow members to make a once-off withdrawal from their accumulated savings (vested pot) once the new system was in full effect. The seeding from the vested pot into the savings pot will be subject to limits and other terms and conditions. National Treasury, did however, indicate that these once-off withdrawals would only be allowed on condition that they did not have adverse implications on the Funds’ liquidity* and the costs of implementing these withdrawals were not imposed on members.

Members who are retrenched will also be allowed to draw an income from their retirement pot. There are, however, specific conditions that will apply to this, including a limited timeframe and members should be able to prove that they do not have any other means of income.

We are expecting that there will still be quite a few changes to the draft bill going forward, before it becomes legislation. It remains the Fund’s responsibility to ensure that members understand these changes and the implications thereof and we will therefore keep you updated on any new developments.

*Converting assets into cash without affecting their market price.

We engage with our members on a regular basis, to provide them with a better understanding of Fund benefits and services as well as the benefits payable when they end service. These engagements ensure that our members receive the correct information and facts directly from the Fund instead of possible unreliable sources.

LET’S CHECK THE FACTS!

My home loan application was declined, because I have bad credit. If I join another fund, my loan will be approved, because they are not as strict with the qualifying criteria

FACT:

All Local Government funds, including the NFMW, are governed by the Pension Funds Act and may only issue surety for pension-backed home loans. The loan is provided by the Fund’s financial credit provider who must comply with the National Credit Act (NCA). Even if you join another fund, the credit provider will perform credit and affordability checks and your application will also be declined if you do not meet the criteria as set out in the NCA.

I heard that the retirement reform changes that came into effect on 1 March 2021 do not apply to public sector funds, including Local Government Funds, which means I can still receive a lump sum when I retire.

FACT:

Private and public sector funds (these include Local Government Funds) are subject to the retirement reform/T-day changes that came into effect 1 March 2021. Provident Funds are treated exactly the same as Pension funds, where only one-third is payable in cash and two-thirds must be used to purchase an income, at retirement.

All accumulated benefits prior to T-Day may be taken as taxable cash lump sum at retirement. The new rules gave existing members vested rights to the benefits they have already accumulated under the previous legislation, therefore their vested rights are protected.

The misunderstanding/confusion may have emanated from the fact that public sector funds were initially erroneously excluded from the amendments, however, that error in law was subsequently rectified, thus all Funds are subjected to the new T-Day dispensation.

Members who were 55 years and older on 1 March 2021 have the option to take all their money as a lump sum at retirement.

Members of other funds will be able to to access up to 30% immediately when the proposed two-pot system comes into effect.

FACT:

Once the new legislation as explained above comes into effect, it will specify the conditions of allowable withdrawals, including the percentage/amount members will be able to access and the implications thereof. We can only confirm, once final legislation has been drafted and implemented.

WE WANT TO URGE MEMBERS TO CONTACT THE FUND DIRECTLY IF THEY NEED CLARITY ON THESE ISSUES AND FOR ASSISTANCE WITH ANY OTHER QUESTIONS THEY MAY HAVE.

Regards,

Mr Leslie Ndawana
Principal Executive Officer.