Important legislative changes to retirement funds

Sabir Bacus
Senior Benefit Consultant

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The already complex South African retirement fund environment, from both a legal and a tax perspective is about to become even more so

On 9 June 2023, the National Treasury released two draft bills, the Draft Revenue Laws Amendment Bill and the Draft Revenue Administration and Pension Laws Amendment Bill.  These bills seek to establish the Two-pots retirement system, set to take effect from 1 March 2024.  Other important changes have been drafted into these Bills, which will impact divorce, maintenance orders, disputes between employers and employees, and loans.  We provide a brief summary of these proposed changes.

Home loans maximum limits

A fund may only permit a maximum of 65% of a member’s benefit, which includes the savings, retirement, and vested components, to be available for the utilisation of a home loan.

This limit will also apply to any guarantees furnished by a fund.

Employer claims against a member

Previously an employer could claim compensation for losses incurred, for example, as a result of fraud or theft committed by a member, when the member exited the fund. The new requirement is that an employer may claim compensation for the loss only when a member leaves employment.

Compensation order in a criminal court

Previously an employer seeking compensation from a member, via the courts for example, as a result of losses incurred due to fraud or theft, could only use the civil court system.

It is now specifically stated in the Bill that if a compensation order is granted, in a criminal court, in terms of section 300 of the Criminal Procedure Act, the Employer may use this order to claim compensation for damages from the fund.

Hence, an employer need not pursue both a civil case and a criminal case for the same matter.

Withdrawal of savings component, loans, and consent thereto

A member may not take a savings withdrawal benefit without the employer’s consent where an employer housing loan or guarantee has been furnished, or where there is a judgment in favour of the employer that has not yet been executed unless the withdrawal will not result in there being insufficient funding to comply with the judgment.

A retirement fund may not, without the consent of the member’s spouse, grant a loan or guarantee or permit a savings withdrawal benefit to be taken by a member if the retirement fund is aware that a divorce action is pending.

Restrictions on savings withdrawal benefit

A retirement fund may not allow a member to take a savings withdrawal benefit where there is a maintenance order in place, unless it is satisfied that the withdrawal will not result in there being insufficient funding to comply with the order.

A retirement fund may refuse to allow a member to take a savings withdrawal benefit if the fund is aware of a pending maintenance order action and where the fund is not satisfied that the withdrawal will result in there being sufficient funding to comply with a pending order. However, a court must grant an order authorising the refusal.

Withholding of benefits in respect of a damages claim

If an employer is instituting a claim against a member for damages but has not obtained a judgment against the member, the fund can only withhold the member’s benefit or savings withdrawal benefit if a court has granted an order authorising the withholding (or refusal) of these benefits.

Currently, Trustees determine whether benefits could be withheld.

Interim maintenance order

A member’s benefit may be reduced by any amount payable as maintenance in terms of an interim maintenance order granted by the court.