Retirement fund warning for employers

If South African retirement funds and administrators fail to register rule amendments on time for the country’s new “two-pot” retirement system, it could cause major problems for employers and their employees.

This is according to Chief Commercial Officer of Discovery Corporate and Employee Benefits Guy Chennells, who said there is “no turning back” with this new system. 

The new two-pot retirement system will officially come into effect on 1 September 2024 and entails many new responsibilities and implications, not only for providers but also for employers.

The Revenue Laws Amendment Bill, which President Cyril Ramaphosa signed into law on 1 June, establishes a “two-pot” retirement system.

This new system gives members of retirement funds access to retirement savings without having to resign or cash out entire pension funds.

“This legislative action signifies the final step towards the implementation of this new retirement system and effectively means that effective from 1 June 2024 – there is no turning back,” Chennells said.

If retirement funds fail to register on time, it could cause major problems for employers, Chennells warned.

“Failure to register rule amendments for Two-Pot implementation with the Financial Services Conduct Authority (FSCA) by 1 September will mean no savings withdrawal claims can be paid from the Fund.” 

This could also impact the tax approval status of retirement funds when the South African Revenue Services (SARS) does its annual tax assessments.

“If retirement funds lose their tax approval status, it will mean that contributions to retirement funds are then no longer tax deductible, and employers could have an industrial relations disaster on their hands,” Chennells said.

Discovery explains that many, if not most, employees will be making a withdrawal. If they have problems accessing their money, they will look to their employers for answers. This could result in very difficult labour relations issues for employers.

Chennells said employers also need to take steps to ensure they are ready for the new retirement system and that employees are able to access their withdrawal claims. 

What employers need to do

  • Drive tax compliance

All companies need to ensure that their employees have tax numbers, which are included in the data they share with their retirement fund administrator.

“Employees will need to be registered for tax to make a withdrawal, even if they are below the tax thresholds,” said Chennells. 

“This is because SARS has confirmed that every withdrawal from the savings component will need a tax directive, and administrators will withhold marginal tax on each transaction.”

  • Maintain or update ID or passport and phone numbers

Employers must regularly update employees’ cell phone numbers and send these revised details to their retirement fund administrator every month. 

They should collect ID numbers for every employee. For foreigners, they must collect new passport numbers when old ones expire.This is so that administrators can verify who is asking for a withdrawal, explains Chennells. 

“If an employer has incorrect ID or passport details, the process will stop, and they will have to update those details through the next month’s contribution schedule, leading to serious delays.”

He added that the ID or Passport number shared with the administrator must be the same one used to register for one’s tax reference number. If they do not match, SARS will decline the directive application.

  • Drive digital adoption

Employers need to ensure that retirement fund members know how to log in to their administrator’s digital platforms, as this is likely where they will need to request withdrawals.

“Logging in for the first time can sometimes be a challenge (for example, if ID or passport and cellphone numbers are not up to date). So, it will be better to resolve this now than all at once come September.”

In the first month of the Two-Pot system’s implementation, withdrawal volumes could be 50 to 80 times higher than current exiting member withdrawals.

That means it will be impossible to manage these volumes manually without months-long wait times for withdrawals.

  • Reassess your provider

Chennells cautions that any employers who have doubts about whether their funds will be able to get through the legal hoops and deliver straight through claims processes should consider moving funds before the new system is implemented. 

“Waiting until September to find out that you – or your employees in the case of employer-sponsored umbrella funds – are unable to get access to your money would be extremely frustrating,” he said.

The next question is what would happen to people or companies that decide to change their providers if their Section 14 transfer is still in progress by 1 September.

According to the FSCA, the old fund must calculate “seed capital” – money available for withdrawal – for everyone, regardless of transfer status. 

The concern is the old fund might delay payouts since your money is leaving them.

“Of course, if a fund is not able to pay claims for schemes awaiting transfer, they are likely to have heavy delays in paying withdrawal claims for active members, too,” said Chennells.

“Employers currently contributing to such a fund should consider moving sooner rather than later to at least give members some new contributions in the new fund from which to withdraw, and to have got the ball rolling to get members savings into a fund from which they can access the seed capital in a reasonable time.”

  • Communicate the basics

Many people might still not be properly informed about all the basic rules that will govern the two-pot system or incorrectly believe that they will lose their vested lump sum rights.

Employers need to communicate about the implementation of the Two-Pot system and educate employees about how it will work.  

“Now that the President has signed the Revenue Laws Amendment Bill into law, with the Pension Fund Amendment Bill signing now expected to be signed very soon, people need to know that 1 September is ‘D-day’. It will not change again,” Chennells said.

“They need to get their affairs in order if they’d like to withdraw from their retirement funds, and this includes things like registering for tax if they are below the tax thresholds.”


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