Revisions to the draft legislation on the “two-pot” system for retirement funds were published on 9 June 2023, incorporating proposals mentioned in Chapter 4 of the 2023 Budget Review.
National Treasury, on 9 June 2023, published for comment revisions to the Draft Revenue Laws Amendment Bill and Draft Revenue Administration and Pension Laws Amendment Bill, which relate to the proposed “two pot” retirement system. These amendments incorporate tax proposals mentioned in Chapter 4 of the 2023 Budget Review.
The two-pot retirement system is intended to create two “pots” for retirement fund members. From the date the new system comes into effect, members will be able to make one taxable withdrawal a year from their “savings pot” (one-third of contributions), but the “retirement pot” (the other two-thirds) has to be preserved until retirement and used to purchase an annuity. There is a third pot, the vested amount in the fund at implementation date.
A phased approach will be taken to introduce this fundamental change to the current retirement savings regime.
The proposed legislation has already been circulated for comment. The final legislation will refer to the “two component” system, although “two pot” will continue to be used colloquially.
The main changes in these drafts are that they:
- introduce the planned implementation date of 1 March 2024;
- allow retirement fund members on that date to access “seed capital” in the fund, calculated as 10% of the vested value at 29 February 2024, up to a maximum of ZAR 25 000, which would be subject to normal tax;
- provide for equal treatment of defined benefit funds; and
- exempt legacy retirement annuity funds from the two-pot system.
In the second phase of implementing the two-pot system, the legislation will deal with the potential for withdrawals by members who are retrenched and have no other form of income. National Treasury wants to allow access to retirement savings only as a last resort.
Written comments from the public are invited on the latest drafts by close of business on 15 July 2023. After this date, public workshops will be held. Webber Wentzel will be participating in the public comments process.