Retirement fund administrators must ensure proper records are kept of members’ contributions, especially with the soon-to-be implemented two-pot retirement system.
This according to Nondumiso Ntshangase, a senior legal advisor at the Office of the Pension Funds Adjudicator (OPFA), a statutory body established to resolve disputes in a procedurally fair, economical and expeditious manner.
The two-pot retirement system will come into effect on 1 September 2024, promising access to financial relief for retirement-fund members. The system holds great promise, but presents potential challenges if not properly managed. One of the main concerns to the OPFA is record keeping.
Under the two-pot retirement system a member’s contributions will be split into a savings and a retirement component. The third is the vested component – members’ contributions at 31 August 2024.
From this component 10% or R30 000, whichever is lower, will be used as a once-off seeding amount in the savings component, which can be claimed from the implementation date.
The vested component will be subject to existing retirement laws, allowing a member to claim a withdrawal benefit when they resign from employment.
The savings component will consist of the seeding amount and one-third of the member’s contributions in the fund from implementation, which can be accessed annually. When a member accesses this component the withdrawal amount will be taxed on the member’s marginal rates.
The retirement component will consist of two-thirds of the member’s contributions from implementation and can only be accessed at retirement.
“Funds and administrators are responsible for administering these benefits and maintaining accurate records of the separate components,” said Ntshangase. “Different rules on access and tax apply to each component, requiring funds to ensure separation of the respective components.
“Historically, a substantial number of disputes referred to the OPFA relate to the calculation of benefits. This requires funds to furnish records relating to members’ contribution history to ascertain if the correct amount was paid by the fund. But experience has shown that funds often struggle to maintain accurate records.”
For the proper implementation of the two-pot retirement system, funds must address existing record-keeping challenges.
Funds and administrators must enhance their systems to administer the system effectively, and they are expected to communicate with members to ensure they understand the proposed changes.
“Members must consult with their funds to ensure they are ready for the system,” Ntshangase said. “They can request their fund values before implementation so they are aware of the values in their vested pots and the process to follow when claiming a withdrawal from the savings component.”
