(Bloomberg) -- South African lawmakers agreed to postpone the introduction of a new retirement system that will allow savers early access to part of their pensions.
The National Assembly’s finance committee last month decided to introduce a so-called two-pot pension system from March 1, even after the National Treasury and the retirement industry sought to delay its implementation. The new arrangement will enable individuals to contribute one-third of their savings into an account they can access at any time, while the balance of their money will only become available at retirement.
Finance Minister Enoch Godongwana asked lawmakers to delay the start of the new dispensation to Sept. 1 to enable the necessary systems to be put in place, according to a letter from the minister read in parliament on Monday.
To enable withdrawals “from the savings component at the date of implementation, funds must apply for the correct tax rate for the withholding tax,” Godongwana said in the letter. “This would be done through a directive from the South African Revenue Service. SARS has indicated that they need at least six months after promulgation of legislation to put such a system in place.”
The pension management systems and the Financial Services Board also aren’t prepared for the change, said Dawie de Villers, the chief executive officer of Alexander Forbes Group Holdings Ltd., the nation’s biggest pension fund administrator.
“The majority of people are not going to have access to their money on March 1, and doesn’t matter who says what from here on because it’s physically not possible,” he said in an interview on Monday. “It only works if a member can get his hands on that withdrawal and the soonest that that can happen, in my opinion, is in September next year.”
The reforms have been on the agenda for almost a decade, but gained momentum after the global pandemic upended the economy and pushed the unemployment rate to a record high. That led to mounting calls on the government to make retirement provisions more readily accessible.
The legislation previously approved by the finance committee still needed to be approved by both parliamentary chambers, before being presented to President Cyril Ramaphosa to sign into law. All political parties agreed to the delay.
Once the changes are agreed, AlexForbes expects them to have a positive net impact on its revenue over the long term owing to the compulsory preservation of two-thirds of the retirement pot, which it says will boost assets for the firm and the industry.
“In the past we had to preach preservation, and now it’s going to be in law,” De Villiers said. “It’s going to be prescribed and that’s great for all members toward retirement, but certainly for us as an industry.”
South Africa had 3.34 trillion rand ($178 billion) of retirement assets at the end of September, data from the Association for Savings and Investment South Africa show.
A 30,000 rand cap on withdrawals from pension fund contributions made prior to March 2024 means funds won’t have to liquidate a large proportion of their assets, according to De Villiers.
“We’ve modeled very conservatively given the numbers that are available and it’ll be between 1% and 2% of assets moving out, and most funds have that in cash, so I don’t think it’ll have a big effect on the equity market,” he said. “That’ll be money that can go back into the economy, so I think there’s more positive than negatives.”
--With assistance from Gordon Bell.
(Updates with comments from retirement funds administrator CEO starting in first paragraph after Read More box)
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