The retirement industry eagerly anticipates what could be its most significant reform, while the healthcare sector braces, some with apprehension, for the National Health Insurance bill to pass into law.

Two pot system – 1 September 2024

After much toing and froing, it appears that a final date has been decided for the implementation of the two-component (‘two pot’) system, in terms of the Revenue Laws Amendment Bill and Pension Funds Amendment Bill, although parliament is yet to give its final stamp of approval.

In summary, the two-component system, effective 1 September 2024, will mean:

• If you contribute to a retirement fund, 1/3 of your contribution will be allocated to a savings component, and 2/3 of your contribution will be allocated to a retirement component.
• 10% of your vested component (this is the value of your fund prior to 1 September 2024), up to a maximum of R30 000, will be moved to your savings component. This ‘seed’ capital is a ‘once off’ to assist members who need access to capital when the system kicks in. Further withdrawals will be based on balances in the savings component.
• Withdrawals, allowed once a year, are subject to tax at your marginal (normal) rate.
• You will not have access to your retirement component until you retire.
• Your vested component will still be subject to the Rules that applied before 1 September 2024, which means you can take your benefit in cash on withdrawal.
• Deductions for maintenance and divorce orders, housing loans and employer compensation for fraud, theft, misconduct, and dishonesty will be applied proportionately across the three components (savings, retirement and vested).

Concerns and comments

A major concern is the delay in the passing of the final bill, which means retirement funds will have to amend their rules without knowing whether there will be changes once the final bill is passed. Another concern is the expectation members may have regarding seeding capital. Members may expect to receive payment soon after the effective date; however, this is unlikely, given the large volumes of claims expected and whether administrators and SARS are able to cope.

The two-component system emerged out of the dire need by members, exacerbated by the COVID-19 pandemic, for financial assistance. The new system will allow members to have access to their retirement savings, albeit with certain limitations, without having to leave employment. Members must be encouraged only to access funds in their savings component for emergencies and not use the savings component as a transactional account.

Frequent withdrawals mean more tax and a reduced income at retirement. The other positive effect of the new system is to ensure higher preservation levels by not allowing access to 2/3 of contributions plus growth until a member retires.

NHI Bill – President to sign into law (SONA 8 February 2024– ready to sign)

Speaking at the 2024 State of the Nation Address earlier this month, President Ramaphosa joked that he was “looking for a pen” to sign the NHI into law after it was recently passed by the National Council of Provinces (NCOP). The NHI aims to introduce universal healthcare. “We plan to incrementally implement the NHI, dealing with issues like health system financing, the health workforce, medical products, vaccines and technologies, and health information systems,” said Ramaphosa. The Bill has received harsh criticism from those in the healthcare sector, doctors, and business leaders. Primary concerns raised are in respect of how the new system will be funded and the fear that the poor taxpayer will have to foot the bill. Although the bill has passed through parliament, the general consensus is that the bill (at least in its current version) is unlikely to be operational for some time.

TCF and Reg 28 principles

In December 2023, the Financial Conduct Services Authority (FSCA) sent a survey out to the Principal Officers of retirement funds, requesting information relating to transformation in respect of Regulation 28-linked service providers.

Funds were requested to complete the following assessment:

• Treating Customers Fairly (TCF) self-assessment about the implementation of measures to meet the TCF outcomes. This part of the assessment is not new – many funds have completed it already.
• The Regulation 28 principles of self-assessment with regards to the implementation of measures to consider in contracting services to a fund or its board.

The assessment had to be returned to the FSCA through its online submission portal by 31 January 2024, although I am aware that the FSCA is prepared to grant an extension, on application.

Breaking news!

• President Ramaphosa announces election date: 29 May 2024.
• Minister of Finance, Enoch Godongwana, delivered the 2024 budget speech, advising that the Health portfolio would be allocated R848 billon over the Medium-Term Expenditure Framework (MTEF), confirming government’s commitment to its NHI policy. The 1 September 2024 implementation date for the Two-Pot system was confirmed.

We will continue to keep you updated on any further developments regarding these legislative pieces, with particular emphasis on the National Health Insurance Bill and the ‘Two-Component’ Retirement System.