FIFI PETERS: There has been an replace to authorities’s drive to enhance the extent of financial savings of most South Africans, notably at retirement stage, whereas additionally permitting them to dip into their pensions or their provident funds immediately, notably when issues get a bit tough.
To fill us in on what these adjustments are and the element behind the two-pot retirement system at the moment I’m joined by Johan Gouws, the top of recommendation at Safin Wealth. Johan, thanks a lot in your time.
I see one of the foremost adjustments introduced immediately concerning the two-pot system [is] the shifting of the implementation date by a 12 months. What do you make of that, and do you agree with National Treasury that this was the perfect factor to do proper now, provided that the beginning date that was initially pencilled in for March subsequent 12 months wouldn’t be possible?
JOHAN GOUWS: Good night, Fifi. Great to be with you. Fifi, this was really no shock. We had been all ready for this to be introduced as a result of there’s no approach that you simply had been going to implement one thing like this in such a brief area of time.
So, to reply your query, I believe it’s the extra accountable factor to quite push it out and ensure that your pension retirement fund directors are ready to really administer this new two-pot system.
I do know Cosatu [Congress of South African Trade Unions] has been pushing very arduous for this as a result of they’re saying that many of their members are in dire straits and so they actually need entry to the pool of cash – and never solely the pool of cash that they may begin saving from the date that the promulgation round new laws occurs, but in addition historic financial savings.
So Cosatu, for instance, has now stated can’t we take a look at October 2023 at the least, and never April 2024.
But, as I stated, Fisa [Fiduciary Institute of South Africa] additionally mainly made it very clear that they had been saying that you’d want about 18 months from the date of the vetting of the ultimate laws for the trade to get the methods in place to implement the two-pot system.
FIFI PETERS: The new deadline although, the brand new date, March 1, 2024 or so – is that achievable in your view?
JOHAN GOUWS: Even that I’ve a query mark round, Fifi, as a result of we’re nonetheless going by means of a course of.
Retirement reform has been taking place for some time now, and this impacts the flexibility of system directors or pension retirement fund directors to cater for all the brand new laws.
For instance, the entire consolidation of your pension and your provident funds right into a single fund to degree the taking part in area for these two funds remains to be taking place as we communicate.
Now we wish to add this two-pot system on high of that as an extra layer of complexity for these directors.
So I believe the possibilities are that we would even see one other postponement previous March 24.
FIFI PETERS: What will it take? What items want to be in the appropriate place to make this work efficiently? I’m attempting to perceive the intricacies and the complexities round why that is going to take so lengthy to implement efficiently.
JOHAN GOUWS: Well, keep in mind that what is going to occur is a member will, with the implementation of the two-pot system, mainly have three pots at a minimal.
There would be the ‘vested’ pot. That is all the cash that the retirement fund member would’ve saved up to the purpose that the laws mainly comes into impact. Let’s say it’s going to be March 2024, then all their cash that they’ve saved up to then will likely be known as their ‘vested benefit’.
And all the cash that they begin saving then from March 2024 will likely be break up into two pots. The one is your financial savings pot, and the opposite one is your retirement pot, and it is possible for you to to make one withdrawal a 12 months out of your financial savings pot, a minimal of R2 000 — and that will likely be taxed at your marginal tax price as half of your annual earnings.
But [in] the retirement pot, the opposite, there ought to at the least be two thirds. That was at all times out there in that pot which you really can’t contact till the day that you simply do retire.
So mainly what could have to occur is that the completely different retirement fund directors could have to have a lot [greater] data that they’ve to maintain in place, and they’ll have to have the ability to maintain observe on which member has withdrawn, what quantity, and at what cut-off date.
FIFI PETERS: In phrases of what occurs proper now, although, ought to anybody get retrenched proper now, or ought to anybody go away their job proper now, what can and may’t they do in phrases of accessing their pension or their provident fund?
JOHAN GOUWS: Well, that is precisely the purpose.
I’d say, Fifi, that the two-pot system is the lesser of two evils.
The cause why folks don’t have adequate financial savings the day they retire is as a result of they don’t protect. What do I imply by that? They run into bother sooner or later with debt or cash-flow issues, and so they resolve, you realize what, I’m quite going to go away my employer, and I’m going to money in my retirement financial savings and pay the tax – after which I can at the least entry this cash.
So what authorities was saying is all of that is taking place too continuously. Let’s see if we will’t discover one other approach of giving folks entry to some cash whereas they’re nonetheless saving for retirement with one other half.
That’s how the two-pot system took place. So, sure, in the meanwhile you too can make a withdrawal of your cash, and it’ll be taxed at your retirement lump-sum desk price, which could be very costly. So you’ll be paying lots of tax, most likely. And then you’re simply mainly pushing the issue down the road for the day that you simply retire.
So within the quick time period you get some sort of reduction, however in the long run you create one other gap for your self.
FIFI PETERS: Is there something that this authorities can do within the interim, any intervention that they will put in place briefly – whereas they cope with the executive necessities to get this factor going efficiently – to make sure that you don’t have a state of affairs the place an increasing number of folks proper now may very well be tempted to money in all their pension and provident funds, as has been the case traditionally?
JOHAN GOUWS: Fifi, up to now I haven’t actually seen any options to what is recommended. I believe, once more, we’re going to run into the issue of the way you administer [things] in case you do permit folks [to do so] on a brief foundation. A short lived foundation may really trigger you extra hurt if you need to implement the system formally.
So I simply can’t see it proper now. We are sitting with this case the place essentially the most financially weak folks in our nation are actually struggling, and so they actually do need to get entry to the cash. And you don’t need them to mainly lose their jobs simply to get entry to their cash proper now and have to restart their retirement plan another time.
If you simply have a really fundamental understanding of the facility of compound progress and what you’re doing to your retirement financial savings end result by taking some of your cash now, you’ll not contact that cash.
FIFI PETERS: I believe even those that do have the understanding of that, although, Johan, might discover themselves in a state of affairs that they didn’t anticipate.
I had a dialog with a woman who, on the age of 50, was now divorced and had to take care of her youngsters. Her choices had been very skinny in phrases of what to do for cash proper [then]. I believe she understood compounding, but it surely was the issue of her current circumstances that made her take a look at the retirement fund or the provident and pension fund avenue.
But sir, thanks a lot for explaining what has occurred up to now, and in addition giving us your backside line – that regardless that there was an extension to the implementation date, one other one may very well be forthcoming, given the complexities that this system would require to be applied. Johan Gouws is head of recommendation at Sasfin Wealth.
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