The ‘two-component retirement system’ (or more colloquially known as the ‘two-pot system’) is finally nearing the end of its legislative journey. 

The two-pot system stems from the proposed amendments to the Income Tax Act, 1962 as set out in the Revenue Laws Amendment Bill (RLAB), which has been submitted to the President for his assent. On 25 April 2024, following extensive consultation and engagement, the National Council of Provinces passed the Pension Funds Amendment Bill, 2024 (PFAB) with further amendments, which will now be reconsidered by the National Assembly.  While the legislation that will introduce this new retirement system has not yet been enacted, the new system will come into effect on 1 September 2024. 

The amendments have far-reaching consequences for the retirement fund industry and a number of steps will need to be taken to implement and ensure compliance with the new system. Among other things, the rules of retirement funds registered under the Pension Funds Act, 1956, will need to be amended and submitted to the Financial Sector Conduct Authority (FSCA) for registration prior to implementation.

In its latest Communication 16 of 2024 (RF) (Communication) published on 3 May 2024, the FSCA has updated its requirements for rule amendments to be submitted by private sector retirement funds to give effect to the two-pot system.

In terms of the Communication, from 2 May 2024 submissions of the rule amendments necessary to give effect to the two-pot system can now be made to the FSCA. Submissions made before 15 July 2024 will be processed on a ‘first-come-first-served’ basis and any submissions made after 15 July 2024 will only be processed once the first batch has been completed. The FSCA requested that all rule amendments in respect of the two-pot system should be limited to the rule amendments delineated in the Communication and no other rule changes should form part of such submissions. Other rule revisions and consolidations will not be accepted during this period.

To assist our retirement fund industry clients to prepare for the rollout of the two-pot system, we are excited to announce that we have compiled the Bowmans ‘Two-pot Readiness Pack’

Our ‘Two-pot Readiness Pack’ is aimed at private sector retirement funds and contains the following materials:

• Template ‘two-pot’ rule amendments (these are based on a typical defined contribution provident fund, but can easily be adapted for pension funds. The template rules incorporate the proposed amendments to the Income Tax Act and the Pension Funds Act as published in the abovementioned RLAB and PFAB, respectively).
• Outline of a fund ‘two-pot impact assessment’ (to identify the aspects of business, operations, and management that may be impacted, and the plans and procedures needed to cater for the changes required by the new system).
• Template communication to defined contribution pension fund and provident fund members, in line with FSCA requirements.

The Two-pot Readiness Pack is available for a total once-off fee of ZAR 50 000 plus VAT. If any further material changes to the draft legislation are published before 1 September 2024, the Pack contents may be updated if necessary.

The Pack can be ordered by sending an email to [email protected].

Please contact Deirdre Phillips in our South African Employment and Benefits Practice should you require further information, have queries, or to discuss any bespoke rule amendments or advice on the two-pot system.