Finance

South Africans to get a R40 billion boost

The release of retirement savings under the two-pot retirement reform could add around R40 billion to consumer income if fully utilised and taxed similarly.

Investec chief economist Annabel Bishop said this income boost would be a welcome sign for South Africa’s strained consumers.

Bishop said consumers are taking strain in South Africa as their financial vulnerability remains elevated. Consumers are feeling the pressure of high inflation, fuel prices, interest rates and debt levels.

However, releasing retirement savings under the two-pot retirement reform would support household consumption expenditure growth, adding to consumer income and taxed the same way.

At the start of June this year, President Cyril Ramaphosa signed into law the Revenue Laws Amendment Bill, which establishes the “two-pot” retirement system, which allows members of retirement funds to access a portion of their retirement savings while still employed.

The “two-pot” system, according to Institute of Retirement Funds Africa (IRFA) President Geraldine Fowler, offers retirement fund members an opportunity to think more about their retirement savings. 

“This system provides flexibility for fund members that were not available in the past. Members will now need to engage with their retirement funds more often and consider the long-term impact and the taxation of benefits,” she said.

IRFA spokesperson Wayne Hiller van Rensburg said the organisation has consistently endorsed retirement reform and the impact the establishment of the system will have in assisting members in the short term while securing future benefits. 

Fowler also said, “Members will need information and guidance to better understand their options in terms of the two-pot system and the impact of their decisions to take advantage of the legislation.”

“We are, however, waiting for the Pensions Bill and look forward to its signature, which is necessary for full clarity but not necessary for the implementation of this reform,” Hiller van Rensburg said.

The two-pot system’s implementation date is set for 1 September this year.

Old Mutual has also welcomed the recent signing of the Revenue Laws Amendment Bill, which it described as a significant step forward for retirement savings in South Africa. 

“There are significant long-term benefits of this new system, which will bolster financial well-being and provide more flexibility,” said Old Mutual Corporate Consultants managing executive Blessing Utete. 

However, he said the success of the system hinges on thorough preparation and targeted member education.

“One of the most important points to communicate to members is when their money will be accessible,” he said. 

“Even though the legislation goes live on 1 September, it doesn’t mean funds may be able to pay out on that date as there are several steps that need to be implemented first.”  

“This is primarily because the allocations to the Savings Pot can only happen from 1 September onwards.”

Under the new system, members will see either 10% of the value of their retirement fund or R30,000 as of 31 August 2024 allocated to their savings pot from 1 September. 

From that point on, two-thirds of any new savings will be reserved for retirement and cannot be accessed until then.

Old Mutual retirement reform executive Michelle Acton said payouts from this emergency pot cannot be made immediately. 

“Seeding calculations can only be conducted after the end of August, using the values from that month,” she explained. 

The legislation allows for seeding calculations soon after implementation, not necessarily on that date, as a result actual access for member will likely take place after 1 September.”

“There is still a significant amount of work that Funds need to do to ensure they are ready for the new legislation.”

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