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FIFI PETERS: It is time for the weekly Personal Finance feature (on SAfm Market Update). As I said at the top of the show, you are going to be hearing quite a lot about the two-pot retirement system and developments and updates that have been made following the release from government on Friday.
So we’re going to look into these proposed changes to retirement forms and everything that you need to know. These changes are being motivated by the fact that government needs to ensure that a whole lot more people are in a position to retire when it is time to do so, which is not [currently] the case because a lot of people cash out their pensions or even their provident funds when they change jobs, leaving very little for their future selves. We have Blessing Utete, the managing executive for Old Mutual Corporate Consultants for more on this.
Blessing, thanks so much for your time. You have as a company commented on the latest update to the revised 2023 Draft Revenue Laws Amendment Bill that came out on Friday. You’ve welcomed the bill, saying that it provides some certainty to some grey areas. So what has been made a lot clearer by this bill in terms of what is black and what is white?
BLESSING UTETE: Good evening, Fifi, and thank you for having me on the show. Effectively what’s been made a lot clearer is around the aspects of what we’re calling seed capital. Just to take a step back in terms of what two-pot is about, from 1 March 2024, we are expecting retirement funds to have two pots of savings that members will contribute to.
The one pot will become what we call an ‘access pot’. People will contribute one-third of their contributions into that access pot, and two-thirds into a ‘retirement pot’, which will be preserved until retirement.
One of the clarities that has come through is that that pot on 1 March 2024 won’t start with a zero balance. It will start with a credit from the existing funds that members have.
The indication is now that people will be able to access the amount that’s been seeded. And that amount that’s going to be seeded is going to be 10% of the benefit accumulated, limited to R25 000. So that’s one of the points of clarity that has come through.
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FIFI PETERS: Okay. As a practical example, say you’ve got R250 000 now saved in your retirement or your pension fund, you’re saying that one portion of it, that seed capital – let’s say it’s 10% – 10% of that R250 000 will go towards the pot that you can access in terms of a rainy day, and the rest will go to the one that you can access only at retirement?
BLESSING UTETE: That’s correct. So of that R250 000 on March 1, there’ll be R25 000 that’ll be put into this savings portion that can be accessed.
FIFI PETERS: Okay. And that portion – can you take that R25 000 out at one go, or are you limited and restricted in terms of how much you can withdraw?
BLESSING UTETE: There is no limit to what you can withdraw, as long as there are funds available in that savings account. The minimum amount is R2 000. So there must be at least R2 000 in that savings portion of your retirement fund.
FIFI PETERS: And are you able to top up the access pot as time goes by?
BLESSING UTETE: On a monthly basis, if you were contributing to your normal retirement savings, a third of your contribution is going to go into that access pot going forward, so that that saving spot will also accumulate over time, together with your retirement pot.
FIFI PETERS: Okay. What I wanted to ask you as well is that in the event that you may have a little more than the third that you’d like to top up on, would you be able to do so with this particular savings pot, or would this extra that you might have be best served in maybe another savings account that you have?
BLESSING UTETE: That’s goes into the realm of advice. One would have to look at the best option that you have available at that point in time. But certainly retirement funds have always allowed people to put more money into them outside of what’s contributed in terms of what’s stipulated in their contribution from the contract, etc.
FIFI PETERS: Okay. I heard that there are still however some grey areas when it comes to this, perhaps not as many as there were before. But issues around retrenchments – how then do those work?
BLESSING UTETE: The retrenchment issue was an issue that was noted as a request to be considered, to allow people to access as they have when they have no other funds available. That issue has been moved to almost a second phase of the amendment, so it’s not going to be dealt with in this lot of changes; but in the second phase of changes the retrenchment issue will be dealt with.
FIFI PETERS: Okay. So that’s still something that needs to be addressed. What about some of the factors underpinning legacy-fund member policies? If you can just talk to us about that and how that will be treated.
BLESSING UTETE: There are what are called legacy retirement annuity funds, and these funds were [created] many years ago and effectively in their design they were never designed for a regime where there could be some access at some point in time before retirement. So the draft legislation has made provision for these funds to be exempt from having these two-pot structures in them.
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FIFI PETERS: Okay. I would like to understand if this is a positive, or it’s sort of a neutral development.
BLESSING UTETE: It is a positive one in the sense that it is complex to untangle and do the calculations for the two-pot. Members in this category generally are a lot older and very close to retirement in any case. So they are about to reach the benefit from these funds. So for them it probably is a neutral because they’re going to get their money as retirement benefits in the near future anyway.
FIFI PETERS: And the treatment of provident fund members over the age of 55? Just tell us what we need to know here.
BLESSING UTETE: If you recall there was recent legislation that said members over 55 who were in provident funds didn’t have to annuitise their pensions when getting to retirement. That was on 1 March 2021. These people are about 57 now. So these people will be allowed to opt into the two-pot regime as a once-off choice. And if they go into the two-pot regime, when they’re inside they can access that as everybody will be accessing the savings component – or they can stay in the structures that they’re in, which means that they’ll just have the normal access that they had at retirement from their provident fund, but will not have access from a savings access point.
FIFI PETERS: Okay. And retirement annuities?
BLESSING UTETE: Retirement annuities are included. Pension funds, provident funds and retirement annuities are all included. As I said, the only ones that may be excluded, depending on whether they apply for exemption or not, are the legacy retirement annuity funds. So retirement annuity funds are also included in the structuring of the two pots.
FIFI PETERS: I see that to comment on some of the reforms in the Amendment Bill, that date closes on 15 July. So after that what happens? And do you reckon that the industry’s going to be ready to implement everything by 1 March 2024?
BLESSING UTETE: Yes. July 15 is [for] the legislative change process… I think especially from an Old Mutual perspective we are working to make sure that we are ready to deliver services to members who need to access on 1 March 2024, and I think this clarity helps us structure our systems appropriately to do that.
FIFI PETERS: Okay. Blessing, thanks so much for your time and giving us the insights into the developments regarding the two-pot pension system and the new regulations there.
Blessing Utete is the managing executive for Old Mutual Corporate Consultants.
