Balancing access and preservation
Common sense interventions in South Africa’s retirement saving landscape will fall flat unless all stakeholders commit to educating members about how and when to use them. The call is for advisers, employers, employee benefit consultants, fund administrators and retirement fund trustees to go above and beyond to ensure that savers are informed about the impact of, for example, accessing the savings component of the new two-pot solution.
The impact of regulatory shifts
Day two of the 2025 Allan Gray Retirement Benefits Conference started with a discussion on the impact of recent regulatory changes on retirement best practise, and what stakeholders might expect in the coming years. Felicia Hlophe, a senior legal adviser at Allan Gray, got proceedings underway with a quick refresher on the key regulatory reforms affecting South Africa’s retirement landscape over the past decade.
These include the tax harmonisation of contributions to pension, provident and retirement funds in 2016; the implementation of default regulations for investment portfolios, preservation strategies and annuitisation at retirement in 2017; the T-day alignment of pension and provident fund rules from 2021; and, of course, the two-pot system from 1 September 2024. By mid-June 2025, SARS Commissioner Edward Kieswetter revealed that four million savers had made savings pot withdrawals totalling R57 billion since inception.
Nicolette van Vuuren, a Partner at Webber Wentzel, reminded the audience that National Treasury’s two-pot solution was designed to achieve the dual outcome of allowing members to access a portion of their retirement savings for emergencies while improving preservation through their savings years. She noted that although two-pot had achieved what it set out to do, more education was needed to ensure that members understood the impact of each withdrawal: income tax liabilities in the short term, and a reduced retirement pot over the long term.
Complex calculations cause delays
The two-pot implementation was not without its challenges. One example is that some retirement fund members were left without incomes due to delays in the section 14 transfer process.
“We were not getting the component splits from the transferring funds, [and affected] members were then without an income for a couple of months,” Hlophe said. Fund administrators also struggled with the calculation of contribution splits in public sector defined benefit (DB) funds. Van Vuuren explained: “There was a bit of implementation that had to happen with the DB funds, so that they could understand the split.”
Sanchia Petrie, a Specialist Analyst in Fund Governance and Trustee Conduct at the Financial Sector Conduct Authority (FSCA), was asked about interesting findings or trends to emerge over the first 12-months of the two-pot implementation. Costs and industry responsiveness were the first two issues to emerge. According to Petrie, the FSCA published Information Request 2 of 2024 to review the two-pot implementation costs and how fund administrators planned to recoup these costs through fees.
Based on 76 valid responses to this request, the FSCA estimated the once-off cost of the two-pot implementation at around R1.6 billion, averaging R252,00 per member. “The main drivers for these fees were system upgrades, which accounted for 65% of the costs, with the balance for additional staff and staff training,” Petrie said. Most of the fund administrators indicated they had absorbed these costs, with a handful pushing through small administrative fee increases.
Cross-subsidisation may not be fair
The information request showed that half of administrators were charging either flat rate fees of R50-R500 or variable rate fees of R100-R750 per withdrawal. Petrie said this raised fairness concerns, noting that the costs of processing withdrawals were not being spread evenly. Members who withdrew were subsidised by those who did not; short-term members gained at the expense of long-term members; and those with smaller benefits were penalised more heavily. The FSCA is unhappy with these outcomes, but is still unsure of how to address them.
The discussion then turned to the recently issued FSCA Conduct Standard 2 of 2025 that imposes new compliance obligations on retirement fund administrators. According to Hlophe, this standard enhances the regulatory framework set out in Board Notice 24 (BN 24). Van Vuuren reminded the audience that BN 24 was 23 years old and therefore “far behind on a lot of the new financial sector laws that have come in.” She added that the conduct standard was likely drafted in anticipation of the pending Conduct of Financial Institutions (COFI) Bill.
“We need to start regulating fund administrators now instead of waiting for COFI to be implemented … it is a good idea to align how administrators are regulated with the rest of the financial institutions that the FSCA oversees,” she said. Many of the provisions in BN 24 are retained in the conduct standard, although enhanced; but there are new sections that set out the exact requirements for administration agreements and service levels. Overall, the conduct standard shifts fund administrators towards the FAIS-type supervision that intermediaries have been subject to for years.
How COFI impacts the PFA
COFI is not the only change in store for stakeholders in the retirement fund industry. South Africa’s Pension Funds Act (PFA) dates back to 1956 and, while it has been amended, it remains a very old framework. This framework will have to align with the conduct requirements in COFI, and the FSCA has hinted that the PFA may be overhauled or even renamed the Retirement Funds Act to reflect its modern role. What is clear is that retirement funds will be pulled into the same licensing and conduct regulation regime as other financial institutions.
“A retirement fund will be considered a financial institution in terms of COFI, and its activity is going to be providing retirement fund benefits,” Van Vuuren said. “So, like under FAIS, each category or activity will require its own licence.” Alongside this, government is also addressing long-standing problem areas in the PFA, including the repeal and rewrite of section 37C on death benefits and the creation of a dedicated unclaimed benefits fund. Together, these changes aim to modernise oversight, strengthen fairness and reduce disputes.
Sticking with COFI, Hlophe asked how the pending legislation might affect employers participating in umbrella funds. Petrie commented that employers would be brought under regulatory oversight to address the arrear contribution issue. “An employer cannot take money from an employee and tell him or her that they are going to pay it over to a retirement fund, and then make up excuses of needing this cash for something else,” she said. “COFI is going to be a game changer, because under COFI, we will be regulating employers.”
Are employers subject to COFI?
This sounded like overreach, so your writer did some digging. It turns out employers are not classified as financial institutions under COFI, nor will they be licensed. Instead, fund administrators will most likely be compelled, through conduct standards, to expose and escalate employer non-compliance more effectively than before. “With the new conduct standard and moving towards COFI, there will be an obligation on the fund administrator, and if not the administrator, the employer, to report arrear contributions to the FSCA,” Van Vuuren said.
Returning to two-pot, the presenters spoke about the need to balance accessibility and preservation. Van Vuuren argued that the system works best when members understand that short-term access must not undermine long-term sustainability. So, they should only dip into the savings pot when they absolutely have to. And Petrie noted that the two-pot framework had forced funds to confront arrear contribution issues, with members themselves demanding answers about deductions that never reached their retirement accounts.
The audience was encouraged to view reforms like COFI and two-pot as opportunities to strengthen retirement outcomes. And administrators, advisers, employers and fund members were challenged to “grab this new regulatory framework” and work with the regulator. “We are going to [continue to] tighten regulation,” concluded Petrie, promising both a COFI and two-pot module as part of the regulator’s toolkit for fund trustees.
Writer’s thoughts:
I was taken off guard when one of the speakers at the Allan Gray Retirement Benefits Conference suggested that employers would be drawn into COFI oversight. Was this a slip of the tongue, or a Freudian slip hinting at the regulator’s future ambitions? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
