The new two-pot retirement system in South Africa presents exciting opportunities and challenges, reshaping financial planning for workers and HR professionals alike says Discovery.
The introduction of the two-pot retirement system marks an interesting and life-changing opportunity for all South African workers. This has, however, also raised serious questions and concerns for those who work in the financial and retirement sectors because, as of 1 September, 2024, the legislative framework for retirement savings will undergo a significant change.
Discovery’s head of umbrella product and technical marketing, Yasheen Modi, and head of legal, Nancy Andrews, conducted a webinar titled “Unpacking the implications of the two-pot retirement system.” According to Sungula Nkabinde, CHRO community manager, the main purpose of this online event was to discuss what this new system means for the HR community and its employees moving forward.
In his opening remarks, Sungula said: “The two-pot retirement system has been a huge topic within the retirement and financial space, but what does it all mean?”
“What does it mean for the human capital profession? What can you do to make sure your employees are fully informed and equipped to take advantage of the new system if they plan to withdraw? Or what should they be aware of before doing so?”
At the outset of his presentation, Yasheen told the audience that Discovery had conducted a similar webinar with about 2,000 advisers and members of retirement funds. During this event, he distributed polls to participants, similar to what he did during the CHRO event, to assess their level of knowledge and readiness for the new system.
While the previous webinar questioned participants about their stance and decisions once the system came into effect, the polls in this event sought to determine how well HR and finance engaged and communicated with employees about the implications of their choices when opting to withdraw from their retirement savings.
It is important to let employees know about the implications when they make a withdrawal, said Yasheen. According to polls, 45 percent are adamant about withdrawing funds, while 55 percent are now hesitant after learning about the impact of a withdrawal on their retirement. Discovery has also taken a step further in educating the masses by developing a two-pot hub of short videos on its website.
“Discovery has tried to make this information as easy and accessible as possible.” Yasheen shared, as he encouraged everyone to visit the site. “There is still a lot of work to be done for those involved in the industry,” Yasheen reflected, explaining that while some are still grappling with the new concept, others have not given it much thought yet. Therefore, ongoing communication about what the change entails is required for the industry.
“It’s unequivocal that the HR community and professionals are going to be imperative to see the smooth transition into what is probably one of the biggest shifts in retirement fund legislation that we have seen in the past 50 to 100 years,” he enthused.
Yasheen’s slideshow presentation focused on three key points: how we got to this point in our legislation, a breakdown of the two-pot system, and a guideline for the HR community’s next steps.
Yasheen briefly examined the retirement systems of other countries, including Australia, China, the United States and France, before discussing the nuances of the French retirement system that may have contributed to South Africa’s new two-pot system.
Nancy, who was there to unpack the legal implications of this new system, shared how it has been a busy time for lawyers in the country, especially with all the different pieces of legislation coming through dealing with retirement reform.
She also explained how we got to this point of legislation, which she traced back to the impact of Covid-19 on our economy.
“The current legislation was influenced by the financial distress that incurred during the Covid pandemic,” she said.
“The intention was as opposed to someone retiring and taking all their benefits and cash, using it all up, and not having enough to retire on again, and the fact that employment is so scarce. I think that the Treasury saw this as a way to combat the high unemployment rate in South Africa, but at the same time trying to relieve those members from some of the financial stress that they have been dealing with.”
According to the Discovery presentation, giving people access to their retirement savings could lead to fewer resignations, more discussions about retirement plans, and increased worker productivity as a result of lower stress and debt loads.
In a poll to determine how people would use retirement savings withdrawals, more than half said they intended to pay off their short-term debt.
“If all of our money had lived in a two-pot world 10 years ago, South Africans would have had double the quality of life that they are currently living. So this move will make good growth of South Africa’s retirement assets,” Yasheen said.
What is the legislation about?
Two pieces of legislation govern this system: the Income Tax Act and the Pensions Funds Act, explained Nancy.
“Pension funds are regulated by the Pension Funds Act so there needed to be amendments in the Pension Funds Act so we can give effect to what is actually tabled in the Income Tax Act.”
Nancy says they are currently reviewing the second draft of the income tax legislation and will provide feedback again, but both pieces of legislation have been signed.
What do administrators and HR professionals need to know?
Nancy says that administrators need to make sure that they have all the necessary information and meet the minimum requirements to access this benefit. These include submitting contribution schedules and information about your members, such as addresses, phone numbers, email addresses, identity documents and income tax numbers.
Furthermore, Nancy urged payroll and fund administrators to make sure that the information given matches what they are sending through on their contribution schedule.
According to the Discovery polls on withdrawal readiness, only 39% of admins are ready for withdrawal.
Yasheen added that businesses should check with their current provider or administrator to see if they are prepared to administer these withdrawals, as they will be dealing with 60 times as many claims as usual.
Discovery said it will be publishing its fully automated process, which includes a WhatsApp and an online process.
