FIFI PETERS: There was 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 at this time, 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 present I’m joined by Johan Gouws, the pinnacle of recommendation at Safin Wealth. Johan, thanks a lot to your time.
I see one of many main adjustments introduced at this time 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 Nationwide Treasury that this was the most effective 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. Nice 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 house of time.
So, to reply your query, I feel it’s the extra accountable factor to relatively push it out and be sure that your pension retirement fund directors are ready to truly administer this new two-pot system.
I do know Cosatu [Congress of South African Trade Unions] has been pushing very exhausting for this as a result of they’re saying that a lot of their members are in dire straits and so they really want entry to the pool of cash – and never solely the pool of cash that they are going to begin saving from the date that the promulgation round new laws occurs, but additionally historic financial savings.
So Cosatu, for instance, has now stated can’t we have a look at October 2023 no less than, and never April 2024.
However, 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 techniques in place to implement the two-pot system.
FIFI PETERS: The brand 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 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 stage the enjoying area for these two funds remains to be taking place as we converse.
Now we wish to add this two-pot system on high of that as an extra layer of complexity for these directors.
So I feel the possibilities are that we’d even see one other postponement previous March 24.
FIFI PETERS: What’s going to it take? What items have to be in the best place to make this work efficiently? I’m making an attempt to know the intricacies and the complexities round why that is going to take so lengthy to implement efficiently.
JOHAN GOUWS: Nicely, do not forget that what’s 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’s all the cash that the retirement fund member would’ve saved as much as 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 as much as then can be referred to as their ‘vested profit’.
And all the cash that they begin saving then from March 2024 can 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 can be taxed at your marginal tax price as a part of your annual earnings.
However [in] the retirement pot, the opposite, there ought to no less than 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 should occur is that the completely different retirement fund directors should have a lot [greater] information that they should hold in place, and they’ll have to have the ability to hold monitor on which member has withdrawn, what quantity, and at what time limit.
FIFI PETERS: By way 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 might’t they do when it comes to accessing their pension or their provident fund?
JOHAN GOUWS: Nicely, that is precisely the purpose.
I might say, Fifi, that the two-pot system is the lesser of two evils.
The rationale 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 recognize what, I’m relatively going to depart my employer, and I’m going to money in my retirement financial savings and pay the tax – after which I can no less than entry this cash.
So what authorities was saying is all of that is taking place too ceaselessly. Let’s see if we are able to’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, for the time being you too can make a withdrawal of your cash, and it’ll be taxed at your retirement lump-sum desk price, which may be very costly. So that you’ll be paying loads of tax, in all probability. After which you might be simply mainly pushing the issue down the road for the day that you simply retire.
So within the brief time period you get some form 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’ll 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 scenario the place increasingly folks proper now could possibly be tempted to money in all their pension and provident funds, as has been the case traditionally?
JOHAN GOUWS: Fifi, to this point I haven’t actually seen any options to what’s prompt. I feel, 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 short lived foundation. A short lived foundation might really trigger you extra hurt whenever you wish to implement the system formally.
So I simply can’t see it proper now. We’re sitting with this case the place probably the most financially susceptible folks in our nation are actually struggling, and so they actually do wish to get entry to the cash. And also you don’t need them to mainly lose their jobs simply to get entry to their cash proper now and should restart their retirement plan once more.
For those who simply have a really primary understanding of the facility of compound progress and what you might be doing to your retirement financial savings consequence by taking a few of your cash now, you’ll not contact that cash.
FIFI PETERS: I feel even those that do have the understanding of that, although, Johan, might discover themselves in a scenario that they didn’t count on.
I had a dialog with a girl who, on the age of 50, was now divorced and needed to take care of her youngsters. Her choices had been very skinny when it comes to what to do for cash proper [then]. I feel she understood compounding, however it was the issue of her current circumstances that made her have a look at the retirement fund or the provident and pension fund avenue.
However sir, thanks a lot for explaining what has occurred to this point, and likewise giving us your backside line – that although there was an extension to the implementation date, one other one could possibly be forthcoming, given the complexities that this method would require to be carried out. Johan Gouws is head of recommendation at Sasfin Wealth.