Draft legislation to amend South Africa’s Income Tax Act and the Pension Funds Act would allow members of occupational retirement plans to access part of their future retirement accruals during employment, with the remainder accessible only upon retirement or death (known as the “two-pot” system). Existing payout rules would still apply to pre-reform accruals (with some exceptions), so in practice it would be a “three-pot” system. The targeted implementation date is March 1, 2024. (However, on October 25, 2023, the government proposed a one-year implementation delay to Parliament’s Finance Committee. While the pensions industry strongly supports the delay, labor and some members of Parliament oppose it. If the delay occurs, references to 2024 below would change to 2025.)
The proposed changes are complex and, at a high level, include the points noted below. For further details, please refer to South Africa: “Two Pots” retirement reforms – latest developments.
The administration of the proposed new components, as well as communications to plan members and amendments to plan rules (which must be approved by the regulator), will be challenging to say the least. Though the proposed provisions may yet change before being finalized, companies with active retirement plans should engage with their plan administrator and advisors to ensure readiness.
