The Institute of Retirement Funds Africa (IRFA), whose members manage assets worth R3-trillion, said funds were nervous but ready for the two-pot retirement system that comes into effect in September.
“As an industry, we are progressing well. Everyone is scared, September 1 is looming. However, I can with certainty say I have never seen role players and ecosystems come together as I have seen with the two-pot system,” president Geraldine Fowler said this week.
From September, those saving for retirement will see their funds separated into a two-pot system, with one-third going into savings that can be accessed annually and the remaining two-thirds going into a pot that can only be accessed on retirement or death. The maximum a person can draw from the savings pot is R30,000.
Fowler said while industry players — consultants, asset managers, and regulators — strongly believe they will be ready for implementation, glitches will be inevitable.
“Yes, there will be hiccups, that is inevitable, but we are standing as an industry on the brink of change as far as the future of retirement is concerned. You have a fully committed industry. I believe we are [managing] well to get ourselves ready,” she said.
“I think over the longer term there is going to be another important thing other than the preservation of two-thirds of retirement for future generations. We have put a peg on the ground, we are going to stop bleeding.
“This is going to create far greater awareness among members as to their retirement savings. Members will take responsibility and better understand what will happen if they start taking money out of the pot.
“Yes, there are times when people will need money when there are emergencies, and there will be money for that. I believe members are going to be forced to become more educated as far as retirement is concerned.”
Enos Ngutshane, a director at IRFA, said young people would be excited about the cash component of the two-pot system, but they would have to contend with the tax implications.
“They will be surprised when taxes hit them. You are not going to end up with the full R30,000, but you will end up with less. My being jittery is about educating members of the pension funds to understand the two-pot system and the long-term impact of their investment so that we teach the need to retire comfortably, so that you do not eat into the money you are putting into your retirement,” he said.
IRFA board member Nancy Andrews said the association had been instrumental in the drafting of the two-pot system and the legislation. “The intent and the purpose of the legislation is clear: all of the stakeholders, from South African Revenue Services to the Financial Services Conduct Authority, the National Treasury, have worked with us bring this to life.”
She also expects there to be hiccups when the system goes live.
“Yes, we will have hiccups. From an industry perspective, the more we get members to know what the plans are and guide [them], the better outcomes we will have as a retirement industry, administrators and trustees,” Andrews said.
In February, finance minister Enoch Godongwana explained that the two-pot system was meant to help members of retirement funds address immediate needs while saving for the future.
“The two-pot system ensures that we strike a balance between preserving contributions to safeguard a better retirement for members while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress.”
The IRFA is scheduled to hold a conference bringing together African retirement industry role players in October.
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