Right here is the brand new retirement system deliberate for South Africa

Nationwide Treasury appearing director-general Ismail Momoniat has supplied a breakdown of the federal government’s plans for a brand new two-pot retirement system, governance of umbrella funds and modifications to current laws.

As a part of his presentation, Momoniat centered on 5 major areas, together with the brand new retirement system for South Africa and the federal government’s plans to deal with flaws within the present system. Authorized agency Webber Wentzel supplied an additional breakdown of every part under.


Two-pot system proposal

On the two-pot system proposal, which entails making a financial savings portion and a preservation portion in every retirement “pot”, Momoniat highlighted this was obligatory to stop workers from resigning so as to acquire entry to their retirement financial savings to repay debt.

The proposal is to separate contributions into two pots for all retirement funds:

  • 1/3 accessible financial savings pot
  • 2/3 retirement pot topic to full preservation till retirement

In observe, a member may withdraw yearly from their financial savings pot, topic to a minimal, however will incur the price of withdrawal and a tax legal responsibility. Vested rights accrued previous to implementation of the two-pot system will stay topic to the present guidelines.

A draft invoice on the two-pot system proposal is anticipated to be revealed in July when the annual tax modification payments are circulated for remark. Treasury initially proposed that the two-pot system could be carried out by 1 March 2023.

Nonetheless, that is prone to be delayed. A extra real looking time horizon might be 3 to five years, as methods will have to be modified and liquidity within the funds addressed.

Making a extra sustainable retirement regime won’t happen in a single day, and widespread session is happening to know the impact of the proposed modifications, Momoniat stated.


Governance of umbrella funds

As it’s uneconomical for smaller employers to take care of a retirement fund for his or her workers, they typically be a part of a multi-employer retirement fund, or umbrella fund.

Momoniat stated among the governance points which have arisen with umbrella funds embrace employers not paying contributions, the shortcoming of employers to change between umbrella funds, prices, over-dependence on service suppliers for recommendation and the appointment of board members who’re additionally consultants/service suppliers to the identical fund.

Proposed options embrace requiring that board members can not belong to greater than three boards in a 12 months, prescribing an ongoing value-for-money analysis of the umbrella fund, and a disclosure-based initiative requiring funds to offer data on their price buildings.

There also needs to be standardised provision of data to allow employers to make comparisons and promote competitors amongst umbrella funds.

Momoniat stated South Africa may implement components of the UK Grasp Belief Scheme and the Chilean Pension public sale system to allow stand-alone funds to pick out and appoint default “consolidation” or auto-enrolment funds once they want them. These components could be regulated below the auspices of the Monetary Sector Conduct Authority (FSCA).


Phased-in auto-enrolment to deal with lack of retirement financial savings

Many South Africans (equivalent to contract or “gig” staff) aren’t at the moment members of occupational schemes since many retirement methods are primarily based on common revenue.

Momoniat stated the federal government is contemplating phasing in auto-enrolment, beginning with formal salaried staff, or introducing necessary retirement provisions for all formally employed staff.

This may compel employers to deduct contributions to an occupational fund for all their workers. Employers needn’t set up new funds, and there might be a default fund for employers who shouldn’t have one.


CoFI Invoice

The Conduct of Monetary Establishments (CoFI) Invoice can be tabled in parliament later this 12 months. The Monetary Sector Regulation Act (FSRA) offers clients and monetary establishments a sign of what to anticipate from monetary sector regulators, whereas the CoFI Invoice outlines what clients and trade stakeholders can anticipate from monetary establishments.

The Pension Funds Act (PFA) is being amended to align with the CoFI Invoice and the general framework by way of the FSRA. The PFA can be renamed the “Retirement Funds Act”, to raised mirror the varieties of funds that are supplied for and controlled by this statute.

References to “pension fund organisation” and “fund” are being amended to seek advice from “retirement fund”. Umbrella funds and employers as supervised entities can be recognised.

Momoniat stated that every one public sector retirement funds, together with the Authorities Workers Pension Fund (GEPF) can be topic to the identical legislative and regulatory necessities, to make sure that members of all retirement funds get pleasure from related protections and rights.

He stated that the distinctive options of the GEPF, equivalent to its measurement, potential impression in complying with asset limits below Regulation 28 and the impression on bond and fairness markets, might necessitate exempting it from sure PFA necessities, both for a specified interval or completely.


Regulation 28

The primary function of Regulation 28 is to guard retirement funds and their members from the consequences of poorly diversified funding portfolios. That is achieved by limiting the fund’s most publicity to extra aggressive asset lessons.

Momoniat stated remaining amendments to Regulation 28 embrace prohibiting investments in crypto belongings till their regulation is formalised and broadening the definition of “infrastructure” to incorporate each private and non-private infrastructure.

In step with the rise in allowable total personal fairness publicity from 10% to fifteen%, the restrict to the combination personal fairness publicity is being elevated from 15% to twenty%.

One of many proposed amendments to Regulation 28 is that the housing loans restrict be lowered to 65% (from the present 95%) consistent with the federal government’s stance on discouraging housing loans by retirement funds.

Nationwide Treasury believes this mechanism has been abused, and step one to deal with that is to scale back the allowable mortgage proportion. In the long run, Treasury believes this mechanism ought to now not be allowed consistent with the supply of the financial savings pot

Evaluation by Joon Chong (associate) and Raeesah Shaik (candidate legal professional) at Webber Wentzel.


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