If your employees belong to a retirement fund, you can take some important steps right now to avoid dissatisfaction and a deluge of complaints.
1. Drive tax compliance
What to do? Make sure your employees have tax numbers, which are included in the data you've shared with your retirement fund administrator.
Why? Employees will need to be registered for tax to make a withdrawal, even if they are below the tax thresholds. This is because the South African Revenue Service (SARS) has confirmed that every withdrawal from the savings component will need a tax directive, and administrators will withhold marginal tax on each transaction.
2. Maintain or update ID or passport and phone numbers
What to do? Make sure you regularly update employees' cellphone numbers and also send those to your retirement fund administrator every month. Ensure that you collect ID numbers for every employee. For foreigners, collect new passport numbers when old ones expire.
Why? Administrators will need to verify who is asking for a withdrawal. If you have incorrect ID or passport details, the process will stop and you will have to update those details through the next month's contribution schedule, leading to serious delays. Phone numbers are just as important because they are the tool to deliver one-time passwords (OTPs) for members to confirm that they are the ones requesting a withdrawal.
3. Drive digital adoption
What to do? Ensure members know how to log in to their administrator's digital platforms. It is likely that members would need to use these digital platforms to request withdrawals. Logging in for the first time can sometimes be a challenge (for example, if ID or passport and cellphone numbers are not up to date). So, it will be better to resolve this now than all at once come September.
Why? In the first month of the two-pot system's implementation, volumes of withdrawals could be 50 to 80 times higher than current terminating member withdrawals. That means it will be impossible to manage these volumes manually without wait times of months for withdrawals. Administrators will have to develop digital straight through processes if they hope to deliver on member expectations.
4. Reassess your provider
What to do? If you doubt your providers' ability to deliver on point 3 above, you have time to move orderly to a more digitally and operationally capable retirement fund.
Why? If you wait until September and find that members cannot get access to their money, you will need to make a move in a hurry, risking an industrial relations nightmare.
5. Communicate the basics
What to do? Tell members about the implementation of the two-pot system on 1 September 2024, and the basics of the new system. Affirm again that they will not lose their vested lump sum rights. So, there is nothing to fear.
Why? Members may have heard much about 1 March 2024, and then March 2025 as implementation day. The proposed implementation date changed a couple of times. The government initially proposed March 2024. This changed to March 2025 when the National Treasury and the South African Revenue Service (SARS) presented their feedback to the Standing Committee on Finance. But the Committee subsequently proposed an implementation date of 1 September 2024.
So, it is important to get members up to speed with these changing dates and adjust their expectations
Some basics to tell members about this system:
- You will start out in September with 10% of your retirement money up to R30,000 available to withdraw.
- It is likely that you will only be able to make withdrawals from mid-September as administrators will need time to do the seeding capital allocations and make sure that is all settled before confirming the amount available in the savings component.
- You can make withdrawals once a tax year, and you will lose nothing by leaving the money in the fund until you really need it.
- The money is intended for your retirement. So, only take it if you have no alternatives.
- The South African Revenue Services (SARS) will tax withdrawals at your marginal tax rate. You will also have an administration fee deducted before you receive your payout.
- SARS will also claim any money you owe them from your withdrawal before it gets paid to you (IT88s), so you should think twice before withdrawing if you owe SARS anything.
- The rest of the money that you have saved before 1 September 2024 will have the same rules apply as those that would apply if you left your employer currently.
For provident fund members (note, only provident fund, not pension fund) who were 55 or older on 1 March 2021 and who have not moved funds since then, they will have an option to opt in to the two-pot system. They can do this before 1 September 2025 (they have 12 months to opt in). If you can identify those members separately, you can communicate differently to them:
- Whatever your plan for retirement is, the two-pot system does not affect it unless you choose to convert to it.
- If you don't convert to the two-pot system, all your future contributions will still be accessible as cash if you resign or retire.
- If you do convert, then you can still take your accumulated money in cash. But your seeding capital (10% of your accumulated retirement savings, capped at R30,000) and one third of future contributions will be accessible in cash without needing to leave your employer. The other two thirds of future contributions will need to be used to buy an annuity at retirement.
So, taking these few steps could help to reduce members' anxiety and help them adjust their expectations.