Muvhango Lukhaimane, Pension Funds Adjudicator
In drafting the operational report of the annual report of the Office of the Pension Funds Adjudicator several months ago, Muvhango Lukhaimane predicted that the launch of the two-pot retirement system would see a surge in complaints.
Ms Lukhaimane, the Pension Funds Adjudicator, said in the OPFA 2023-2024 annual report which was released this week, that there would be an increase in complaints, especially at the initial stages of implementation because of non-compliant employers.
Her forecast has come true – since the launch of the two-pot system on 1 September 2024, thousands of employees have found that the funds deducted by their employers had not been paid over to the funds.
Political parties have raised concerns about missing pension fund money and employees and their unions have staged protest marches.
The two-pot system was introduced to help South Africans manage financial stability and flexibility. One-third of total contributions goes into the savings component and two-thirds into the retirement component. The two-pot system aims to address past challenges where people could not access their benefits when faced with serious financial hardship whilst in employment and for those that cash out their full pension savings when changing jobs, leaving nothing for retirement.
With the new system, from the value of the fund on 31 August 2024, 10% or R30 000, whichever is lower, would be allocated to the savings component as seeding capital. A once-off taxable withdrawal per annum from the savings component was allowed from 1 September 2024.
The rush by members to withdraw from the savings component, inadvertently exposed widespread maladministration as many security firms, municipalities and employers in other sectors have been caught withholding contributions meant for fund members.
Over the years companies have come under fire for short-changing their employees by deducting pensions from their salaries and not handing those deducted amounts over to funds. The Financial Sector Conduct Authority has exposed 3 000 employers for not paying pension funds last year.
Lukhaimane said that with the launch of the two-pot system, more complaints were expected from workers, mainly due to inadequate member communication and education, poor records management by funds and disputes regarding value of benefits withdrawable from the savings pot.
“The successful implementation of the two-pot system will require collaboration and a concerted effort from all stakeholders to strengthen trust in the retirement system.
“The OPFA anticipates an unheralded volume of complaints as members seek to withdraw from the savings component, highlighting the need for funds to ensure readiness and provide clear communication to members.
“It is also imperative that funds register their two-pot rule amendments with the FSCA within the prescribed timelines, to avoid prejudice to members,” said Ms Lukhaimane. She said the OPFA has developed a response plan that includes deployment of additional resources, staff training and a stakeholder engagement plan specific to the two-pot retirement system.
The past financial year also saw significant developments which highlight the interconnectedness of various stakeholders that operate within the retirement fund system. One of these was the release of the National Treasury’s policy statement, “A Simpler, Stronger Financial Sector Ombud System” that aims to reform the financial ombud system in South Africa, strengthening consumer trust and ensuring the system is accessible, efficient, and effective.
The reformed system will include the National Financial Ombud Scheme South Africa (NFOSA), which consolidates various financial ombud schemes into a single entity. A Retirement Fund Ombud is to be created by renaming the OPFA. For now, the OPFA remains separate from the NFOSA.
ENDS
