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Col 18:  The two-pot pension system is now law

But you may be bitterly disappointed now or later

 

The Pensions Laws Amendment Act was signed this week. But on September 1 a lot of retirement fund members are going to be bitterly disappointed. There are numerous reasons for this including that you may not have enough money saved. But another reason is that some retirement fund trustees, principal officers and administrators have not done their job.

Bruce Cameron Col 18 Col 18 The two pot pension system is now law But you may be bitterly disappointed now or later 30July2024

By Bruce Cameron
Co-author to The Ultimate Guide to Retirement in South Africa

 

While a lot of industry and regulator interest is being put on members understanding the two-pot proposals of splitting funds between retirement savings and emergency cash, many retirement fund trustees just don’t seem to care.

Your retirement fund rules must first be processed by the administrator and endorsed by the regulator, the Financial Sector Conduct Authority (FSCA) by the end of July. Then the amended rules must be submitted to South African Revenue Services (Sars) for approval. The withdrawal process could take as much as six weeks to complete.

 

Many people not aware of the problems

Tony Remas, trustee educator at the Academy of the industry organisation, the Association for Savings and Investment SA (Asisa), said he had recently spoken to a number of trade union shop stewards. They had little idea of what was happening with the two-pot system and the same could be applied to many retirement fund trustees.

The union stewards were not aware of:

  • how many people would not have a claim to a cash withdrawal;

  • there would be delays in payments in any withdrawals; and,

  • that those who made the cash withdrawals were very unlikely ‘to maintain an acceptable standard of living in retirement’.

Remas was speaking at an online education lecture for retirement fund trustees, principal officers and administrators.

But there seems to be a problem with trustees and other participants being properly trained. The Asisa Academy trained some 700 trustees, administrator, shop stewards and union members on the two-pot system since last year. Another 19 two-pot systems lectures have been lined up for this year.

But, according to Asisa and FSCA, only 58 percent of funds have submitted rule changes to FSCA for approval by the end of July.

 

How small a pension may be

Remas said the trade union stewards were shocked to find out that any cash withdrawal now, and in the future, could draw members close to the current national average pension capital of R291 541 after 37 years of membership. With a conservative 3% return this would provide a monthly pension of R728. This is far too little capital required for anyone to retire successfully and is less than the current Old Persons Grant for someone at 60 is R2 100. To retirement comfortably you need a pension income of 60 to 80% of your final salary. The main cause of the low average is because of withdrawals before retirement.

The lack of education has become so urgent that a booklet is about to be published by Asisa spelling out the changes for all concerned, including members. It is not a single sheet in English. The booklet will be colour-coded to allow for various options for different retirement fund members, taking account of 11 official languages where possible; and, whether you are a member of a retirement fund or a provident fund (as there are different requirements and exemptions).

 

Not only members should be educated

Remas said that education of people controlling retirement funds should not be limited to members. It should include retirement fund trustees, fund administrators, advisers (particularly individual financial advisers) and human resources officers.

Another issue are gaps in the current legislation. The Government has already given notice that it is to amend section 37 of the Retirement Funds Act. The changes involve divorce settlements. Remas warns that further amendments could be expected to deal with other issues that have been left out as the two-pot system is implemented and which would need to be added.

One of the required tasks of fund trustees is to communicate the changes to the fund rules and what strategies the fund will put in place to deal with the two-pot system.

He said that there were numerous underlying challenges, including:

  • The initial seed capital amount for the emergency savings fund is 10% of the capital currently in a retirement fund, subject to a limit of R30 000. If the resulting amount in a member’s emergency savings account is below R2 000 the member will not be able to withdraw;

  • If a member has multiple contracts, only one withdrawal may be made for each tax year for each contract. But again, the minimum withdrawal amount must be above R2 000 for each fund;

  • Administration fees are likely to be deducted from the withdrawal value. A current example: a minimum fee of R200, and then a percentage charge with a maximum of R600 depending on the amount withdrawn;

  • Apart from the tax owed on any cash withdrawal, SARS will also deduct any outstanding taxes or penalties payable to SARS before a benefit is paid;

  • Any money withdrawn could reduce the lump sum available at retirement (of which R550 000 is tax free if there is no money left in the vested pot (part of your savings pot); and,

  • Any cash withdrawals could put you in a higher tax bracket with more tax being taken out of the amount than a member expects.

 

Warning from Asisa

Adri Messerschmidt, senior policy advisor at Asisa, told a media briefing this week that members must note that:

  • Your withdrawals will be determined by your fund rules. It is obligatory that the authorising amendments to fund rules are lodged with FSCA for approval by the end of July;

  • You must ensure that your retirement fund has your correct contact details. This includes your contact details; and, your personal details such as your identity number, which must be the same with the fund and your bank account;

  • You must be a registered taxpayer. You will need to register now before you receive a payment; and,

  • Once that application has been made for a directive from SARS the process cannot be reversed.

 

Think very carefully

Anyone planning on make a cash withdrawal must think it through very carefully. It is not a matter of arriving at an ATM and receiving the money. If it is possible consult a financial adviser registered with FSCA. Also, preferably use one who is a Certified Financial Planner registered with the Financial Planning Institute, who can maybe help you with a better plan than ruining your retirement.

If you are a retirement fund member and what to know more about the two-pot system go to the website: smartaboutmoney.co.za. The website is provided by Asisa to help educate everyone about all types of money matters. It is worth a read!

 

Preferably consult a Certified Financial Planner before making a withdrawal!

For more information go to www.retirementplanning.co.za

 

Related topics:

https://retirementplanning.co.za/be-careful-about-how-you-invest-in-your-two-pots/

https://retirementplanning.co.za/col-13-name-and-check-your-beneficiaries/

https://retirementplanning.co.za/col-12-a-better-complaints-system/

https://retirementplanning.co.za/the-two-pot-saving-system-bruce-cameron/

https://retirementplanning.co.za/two-pot-system-should-low-income-earners-belong-bruce-cameron/

https://retirementplanning.co.za/column-11-your-future-and-the-two-pot-retirement-system/

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