Biggest challenges to retirement reform in South Africa

The Institute of Retirement Funds Africa (IRFA) recently conducted a study that identified the primary obstacles to the effective implementation of retirement reform, with a need for more guidance from regulators topping the list.

The snap survey was conducted as a precursor to the IRFA’s “Making It Happen” national conference to be held in Cape Town in September.

According to IRFA vice-president Amanda Khoza, the survey was commissioned to surface sectorial information needed to populate the conference with the “right information at the right time”.

“The past few years have seen significant regulatory and policy changes and innovations in the pension sector,” she said.

“Furthermore, the retirement sector is being called upon to contribute substantially to socio-economic upliftment and development in the country and on the continent.”

The survey’s findings have indicated that the primary challenges to implementing the requisite legislative and regulatory reforms are a lack of detailed information from regulatory bodies, legislators and industry bodies. 

Administrative challenges were the second-largest obstacle to effective implementation, while a lack of technical and information resources also ranked relatively highly. A lack of financial and human resources made the list but was ranked very low comparatively.

One of the most significant retirement reforms to be implemented in March 2024 is the so-called “two-pot” retirement system.

This new system will implement a “two-pot” system that will allow pension and provident fund members and retirement annuity policyholders to access a portion of their savings before retirement age without resigning.

Until recently, there had been significant uncertainty surrounding the system, how it would work, and its implementation.

However, the National Treasury’s recently revised the Draft Revenue Laws Amendment Bill and Draft Revenue Administration and Pension Laws Amendment Bill, which would implement the new system, to address these uncertainties. 

The revisions confirmed the following:

• The planned implementation date of the new system is 1 March 2024.
• On this date, retirement fund members will be allowed to access “seed capital” in the fund, calculated as 10% of the vested value on 29 February 2024, up to a maximum of R25,000, which would be subject to normal tax.
• There will be equal treatment of defined benefit funds.
• Legacy retirement annuity funds will be exempt from the two-pot system.

According to retirement reform executive at Old Mutual Michelle Acton, the new draft legislation clarified the industry’s uncertainties regarding the new system, including seeding and accessibility.

Acton said these revisions addressed the industry’s concerns and thereby ensured funds could navigate liquidity issues effectively.