Will industry players be ready to implement the new laws?
The insurance industry waited in anticipation for the release of the updated draft retirement reform legislation.
Michelle Acton, Retirement Reform Executive at Old Mutual, provided insights and commentary to FAnews. She addressed some of the concerns and also provided clarity on the recent draft legislation.
The key takeouts
The updated draft legislation provides clarity to several areas of concern that have been unclear in the past. The most important takeouts, according to Acton, include:
- The implementation date has been confirmed as 1 March 2024.
- The confirmation of the "seeding" concept thus defining the portion of current savings allowed to fund the accessible savings pot (now referred to as the savings component).
- Assurance for provident fund members over 55, who will have the option to continue with their current fund or move to the new system.
- The draft legislation stated that defined benefit funds would be accommodated.
“National Treasury has clarified the 'seeding' element, by setting a limit whereby a maximum of 10% of the member's existing savings, capped at R25 000, will fund the savings component from 1 March 2024. This helps address the initial concerns around liquidity that may have arisen. We are comfortable that the manageable seeding will have minimal impact on the liquidity requirements of retirement funds,” said Acton.
In addition, Acton said the regulations also provide clarity for provident fund members over 55 and retirement annuity funds underpinned by legacy member policies.
The changes expected by March 2024
The legislation is still in draft format with the intention of it coming into effect on 1 March 2024, by which time the industry players must be ready to implement the new laws. This, according to Acton, includes:
- The ability to split future contributions into two new components (1/3 savings and 2/3 retirement).
- The ability to transfer the seeding amount into the savings component in March 2024, and the ability to pay out this new claims type in exceptionally high expected volumes.
- The ability to ring-fence existing retirement savings into the vested component and retain all the rules around this.
- Member and adviser communication campaigns, so that they will understand the changes.
- The ability to facilitate a choice for members over 55 as to whether they will move into the new two-pot system or move into the new regime. “This requires the development of new and intricate automated systems for processing the appropriate claims and the requirement to update all current processes and documentation,” she said.
“If the timeframe proves insufficient, it may result in a number of funds not being compliant on time and not being in a position to process the high volumes of claims which could potentially affect service delivery and the processing of claims. However, we are confident that the timeline is challenging but achievable,” she continued.
The impact on the industry
“These regulations will ensure that every member of a retirement fund will have both a savings component that they can access in case of an emergency, as well as a retirement component, which, with compulsory preservation, will go a long way to improving member retirement outcomes,” emphasised Acton.
These changes, she said, are coming in with all vested rights protected, which also means the change will be gradual.
“The rules will not change for existing savings, but only for future savings, which will be a great step in terms of easing members into this new world. However, in the long-term, these changes will significantly simplify the retirement industry,” she added.
“At the moment, claims within a retirement fund only occur on retirement, death or in the case of occupational funds, on withdrawal. These claims also come through either an adviser or an employer. With the new changes, members will be able to claim more frequently from the savings component, and we believe this will result in a more customer-centric approach, with members taking a lot more interest in their long-term retirement funding plans.”
How the industry should prepare
“The industry should prepare by, firstly, engaging with the proposed regulations to ensure that commentary provided back to National Treasury is clear and constructive. The industry should focus on developing the necessary infrastructure to implement the new laws. This includes building new automated systems for processing claims and redefining their existing operational processes. Furthermore, industry players should engage in open and consistent communication with their members, explaining the changes and their impact in a simple, understandable manner,” said Acton.
“For brokers and advisers, it is crucial to familiarise themselves with the new regulations and understand their implications for clients. Keep in mind that the goal is to offer better retirement outcomes for members. Use this time to proactively communicate with clients, explaining what the new regulations mean for them and reassuring them that these changes are being implemented to their benefit. We are all part of a transformative journey towards a more flexible and robust retirement fund industry,” she concluded.
Writer’s Thoughts
With the legislation coming into effect on 1 March 2024, do you believe the timeframe is sufficient enough for industry players to implement the new laws? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
