Pension Funds Amendment Bill: National Treasury briefing
Meeting Summary
The Select Committee on Finance met on a virtual platform for a briefing from National Treasury on the Pension Funds Amendment Bill.
The Pension Funds Amendment Bill was first published for public comments on 9 June 2023. The Bill introduced the “two-pot” retirement system intended to ensure the preservation of retirement savings when members changed jobs but also to allow members limited access to their retirement savings before retirement, without resignation, when a person was in need of funds and had sufficient retirement funds. The Bill was referred to the Standing Committee on Finance in the National Assembly for consideration. The Standing Committee released the Bill for comments and oral representative presentations with public hearings held on 19 September 2023. The Bill was subsequently revised, incorporating public comment, approved by Cabinet and certified by the state law advisors. The Bill was re-named the Pension Laws Amendment Bill because it included the amendment of other pension funds laws to facilitate the two-pot system: the Post and Telecommunications Related Matters Act, the Transnet Pension Fund Act and the Government Employees Pension Law.
The Standing Committee had approved the Bill the previous week, which was due to be debated in the National Assembly that afternoon. The bill was linked to the Revenue Laws Amendment Bill that the committee had recently adopted, which dealt with the two-pot system in which the savings component housing one-third of a member's retirement contributions would be available for withdrawal before retirement. Members received a clause-by-clause briefing of the Amendments to the Pension Funds Act.
Members raised concerns about addressing the Pension Laws Amendment Bill when related processes in the National Assembly were not yet complete. All parties in the meeting raised a serious concern about pension fund members having to pay the high marginal tax rate on any withdrawal. They asked why National Treasury was creating a law that would impact many, many people purely to prevent one or two people from trying to abuse the system and if there was a provision to monitor the implementation of the Bill.
Members considered the trumping provision: What was there to prevent it from being trumped by subsequent laws? Did the two-pot or three-pot system work for existing pension contributions, or was it only for additional amounts paid into pension funds going forward?
Meeting report
Opening Remarks
The Chairperson welcomed Members and National Treasury and invited the Chief Director to proceed with the PowerPoint presentation.
Presentation by National Treasury on the Pension Funds Amendment Bill and related Bills
Ms Alvinah Thela, Chief Director: Financial Sector Development, National Treasury, presented on behalf of the National Treasury: Two-Pot System Pension Laws Amendment Bill. She was accompanied by several colleagues who attended the virtual meeting.
Ms Thela began with some background information. Initially, the legislation was named the Revenue Administration and Pension Laws Amendment Bill. It was later referred to as the Pension Funds Amendment Bill and was first published for public comments on 9 June 2023. It was then referred to the Standing Committee on Finance (SCOF) for consideration with other tax laws. The Standing Committee released the Bill for comments and oral representative presentations, with public hearings held on 19 September 2023. The Bill was then revised, incorporating public comment, and Treasury briefed SCOF in October 2023. Shortly thereafter, before the Tabling of the Bills with the Medium Term Budget Speech, the Pension Funds Amendment Bill was withdrawn to obtain Cabinet approval and certification by the state law advisors. The revised Bill was introduced in the National Assembly in January 2024. The Bill has been re-named the Pension Funds Amendment Bill because it included the amendment of other pension funds laws: the Post and Telecommunications Related Matters Act, the Transnet Pension Fund Act and the Government Employees' Pension Law as follows:
Clauses 1 to 6: Pension Funds Act, 1956
Clauses 7 to 10: Post and Telecommunications Related Matters Act, 1958
Clauses 11 to 20: Transnet Pension Fund Act, 1990
Clauses 21 to 24: Government Employees Pension Law, 1996
The bill was adopted by the Standing Committee the previous week.
The Bill introduced the “two-pot” retirement system, which would introduce the preservation of retirement savings when members changed jobs and allow members limited access to their retirement savings before retirement without needing to resign. Members were informed that the Bill was linked to the Revenue Laws Amendment Bill that the Committee had recently adopted and dealt with the two-pot system and the savings component, which would house one-third of a member's retirement contributions available for withdrawal before retirement.
Treasury addressed the possible contradictions between the Pension Funds Act and the Divorce Act. The PFA (Pension Funds Act) would apply whenever there was a conflict between the Divorce Act and the PFA, which both contain provisions dealing with pension interest and laws that pension funds would ultimately have to apply.
Ms Thela explained that National Treasury had requested the Standing Committee on Finance to expand the scope of the Pension Funds Amendment Bill to incorporate amendments to the various public sector laws. She presented the relevant clauses to the Committee. Once the Revenue Laws Amendment Bill and the Pension Funds Amendment Bill were passed, fund managers could begin to make the necessary changes to their rules, etc.
(See Presentation)
Discussion
The Chairperson called for questions or comments from Members.
Mr D Ryder (DA, Gauteng) had a couple of concerns. He noted that nothing prevented the Committee from having the presentation that day except for logic and common sense, as the National Treasury was not presenting a final Bill, and some amendments could still come out of the National Assembly. He did not know what the Bill would look like in its final form.
The Chairperson corrected Mr Ryder’s statement, noting that the Bill had been voted on by the Standing Committee on Finance (SCOF) in the National Assembly.
Ms Thela confirmed that SCOF had adopted the Bill.
Mr Ryder agreed that the Committee had adopted it but reminded the Chairperson that the National Assembly (NA) plenary had not yet adopted it.
The Chairperson stated that it was very rare for a Bill to be changed in plenary; that afternoon, the NA was voting on it.
Mr Ryder noted the Chairperson’s explanation but stated that they would have to agree to disagree on that point. He remained concerned about the marginal tax rate issues. They were creating a law that was going to impact many, many people purely to prevent one or two people from trying to abuse the system. It was quite problematic for him, and he thought that the idea of marginal tax rates needed to be monitored going forward as it went against the spirit and intentions of the law.
The trumping provision was quite interesting: what was there to prevent a trumping provision from being trumped by subsequent law? For example, the Divorce Act could be amended, bringing a trumping provision into law because those involved in that legislation felt their position was stronger than the inverse. In addition, he asked whether the provisions were going to be retrospective. Did the two-pot or three-pot system work for existing pension contributions, or was it only for additional amounts paid into pension funds going forward?
The Chairperson sympathised with the National Treasury officials who had a lot of work to do and were under pressure. He asked Ms Thela to comment on the fact that the legislation was introduced without considering that several other Bills had to be amended. National Treasury had amended many other bills correctly, but why was that amendment not included in the first place? Secondly, what was the degree of consultation with the relevant pension funds and/or the public sector departments that oversaw the pension funds? In the public hearings, big stakeholders raised the point about the Bill being rushed and that it was very difficult to do everything that had to be done by 1 September 2024. The Divorce Act had to be amended, etc. Had National Treasury addressed all those concerns? National Treasury did not have to agree with the stakeholders as long as they had been heard; that was important.
The Chairperson noted that Ms Thela was new to the position. He mentioned the previous Chief Directors and senior staff who had moved on from Treasury; he hoped she would stay with Treasury.
Mr M Moletsane (EFF, Free State) stated that the Bill was a very good idea, but his concern was the tax rate when the initial idea had been to help or assist people to get cash. It was a good idea, but taxing the withdrawal amount would affect the initial purpose of assisting a black person to resolve financial problems.
The Chairperson said that when he had looked at the first draft of the Bill, he had wondered how many people would try to abuse the system. As Mr Ryder had said, the balance had to be worked out between those who would and those who would not abuse the system. Marginal tax on an amount of R30 000 would mean that the person would receive only R15 500, which would be much less than a person would be expecting from R30 000. There was nothing the Committee could do at that moment, but it did require further consideration, and he hoped that anyone returning to Parliament after the elections would take up the matter. He would be marching on the ANC in Parliament as an ANC member because trade unionists knew that the proletariat of the country was being undermined. He would put that matter very strongly in the report.
Ms Thela responded to Mr Ryder's concern that the maximum tax rate would be applied.
The Chairperson interjected to say that it was not just Mr Ryder's concern but also that of the EFF, himself and the entire COSATU and most of the country, including Ms Thela's family and relatives, that might be affected. Everyone was against the proposed tax rate.
Ms Thela agreed with his comments and noted that Mr Moletsane had also raised the matter, but she was sure that they would engage further on the two-pot system even after the Bill was passed. The debate on the Bill in the National Assembly took place that afternoon. The challenge was to table a Bill given the time pressure, and National Treasury was not sure if it would have been able to come back later with a Bill that consolidated the changes adopted by SCOF. She highlighted the sections in the presentation adopted by the Standing Committee in purple.
Concerning the trumping provision, she told Mr Ryder that the Divorce Act was pre the two-pot system, so it did not consider that the member's benefit would be separated into the various pots the two-pot system created. The definitions in the Pension Funds Act and other public sector laws were changed to recognise marriages that had been entered into on the basis of religion. Ideally, the Divorce Act would have been amended, but it seemed unlikely to happen timeously. Hence, the provision about trumping had been built into a clause.
Ms Thela responded to Mr Ryder's question on whether applying the two-pot system was retrospective. It was a two-pot system with three components. He was asking about the vested component, the benefits or the value in the retirement fund that a member had access to when the two-pot system came into effect. The vested component would be treated as per the current laws, meaning that a member could access it when a member resigned or left the country. There were rules to that, so if one resigned, one could cash out or transfer, subject to tax. And, if one left the country, there was the three-year rule. So that was the vested component. The Amendment would apply to the two-pots: the savings component, which would be accessible without resignation, and the retirement component, which would be reserved until retirement.
She informed the Chairperson that Treasury had consulted with the GEPF (Government Employees Pension Funds), the Transnet Funds, Post Office and Telkom Funds, as well as the respective departments that were responsible for the administration of the laws, i.e. the Department of Public Enterprises and the Department of Communications and Digital Technology. Treasury was amending public sector laws with clauses similar to the Pension Funds Act that dealt with deductions and how deductions would be allowed from a member's benefits. The funds would still need to amend their rules, just like the private sector funds. However, certain provisions were not in their rules but in the acts that established those funds. Consequently, there was a need to amend the laws to ensure that if there were an order against the member's benefits, the fund could appropriately allocate that deduction across all components. The revised definitions in the Revenue Laws Amendment Bill were included in the fund laws to cater for the appropriate implementation of the two-pot system.
Lastly, Ms Thela concurred with the Chairperson that the National Treasury was under pressure to get the Bill through for implementation on 1 September 2024. Treasury had initially proposed an implementation date of 1 March 2025. However, the Standing Committee had not agreed with the proposal for a delayed implementation date; there was a sense that Treasury had been delaying since the COVID period and, although the Bill had been intended as a COVID-related measure, given the impact and the after-effects of COVID, there was still a need to give members some access to their benefits. The industry had not been pleased with the rush to implement the Bill, given the changes required to their systems and the need to educate and communicate with their members before the two-pot system came into effect. Treasury had consulted with them on an earlier implementation date so that one could call 1 September 2024 a compromise date. However, the Bills needed to be passed and signed off as soon as possible to allow the process of amending rules and changing systems. It was doable in the time available.
The Chairperson called for follow-up questions. He explained to Mr Ryder that Bills went to Cabinet before they went to Parliament, where issues such as one Bill trumping another and so forth were handled. There was no point in belabouring the bill, so he thanked the National Treasury for the presentation and its response to members’ concerns.
Consideration of Minutes
The following minutes were read to the Committee: 6 February, 23 February, 27 February, 28 February, 1 March, 5 March, 12 March, 15 March 2024. All sets of minutes were approved unanimously, without any amendments.
Committee Programme
The Committee Programme for the second term of 2024 was presented to Members. The Chairperson reminded Members that any programme was subject to change, especially in the last quarter before an election. The quarter ran from 16 April 2024 to 7 May 2024, when the Committee would conclude with the Legacy Report.
Closing Remarks
The meeting for Thursday was cancelled as Members would be flying home for Good Friday the following day.
The meeting was adjourned.
Documents
Present
-
Carrim, Mr YI
Chairperson
ANC
-
Aucamp, Mr W
DA
-
Du Toit, Mr SF
FF+
-
Mahlangu, Ms DG
ANC
-
Mamaregane, Ms ML
ANC
-
Moletsane, Mr MS
EFF
-
Moss, Ms LN
ANC
-
Ryder, Mr D
DA
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.