Two-Pot System Set to Transform Retirement Savings from Sept 2024

National Treasury has advised fund members to seek reliable financial advice to understand the potential implications for their withdrawals.

President Cyril Ramaphosa has signed the Pension Funds Amendment Act (31 of 2024) into law, marking the final step in the implementation of the two-pot retirement savings system, which will come into effect on September 1, 2024, following the President's proclamation. National Treasury has advised fund members to seek reliable financial advice to understand the potential implications for their withdrawals.

Key Changes Under the Two-Pot System

The Pension Funds Amendment Act introduces crucial amendments to the Pension Funds Act, 1956, the Post and Telecommunications-related Matters Act, 1958, the Transnet Pension Funds Act, 1990, and the Government Employees Pension Law, 1996. These changes are essential for enabling retirement funds, including public sector funds, to adopt the new two-pot system.

The two-pot system aims to enhance retirement outcomes by ensuring that a larger portion of retirement savings is preserved until retirement. It introduces a dual structure: one pot for long-term retirement savings and another for short-term access in case of financial emergencies. This reform allows fund members to access a portion of their savings in times of financial distress without the need to resign from their jobs.

Impact on Fund Members

National Treasury has highlighted that fund members should be aware of the potential costs associated with early withdrawals. Administration fees and taxes at marginal rates will be deducted from withdrawals, which may result in a loss of future growth and the retirement benefits initially intended for those funds.

The new system provides a safety net for individuals facing genuine crises, reducing reliance on high-interest loans or the need to exit the workforce to access retirement savings. However, it is crucial for members to consult with trusted financial advisors to navigate these changes effectively.

Implementation and Transition

Retirement funds and trustees are currently aligning their rules with the new legislative requirements and will soon communicate the updated processes to fund members. Amendments to fund rules must be approved by the Financial Sector Conduct Authority before they can be implemented.

Funds are expected to introduce the new split for contributions into the two components (savings and retirement) by September 1, 2024. The calculation of the once-off seeding capital value, which represents the retirement savings accumulated before the implementation date, will also be completed. This value will be available for transfer to the savings component and accessible to members starting from September 1, 2024.

Despite these preparations, some funds may face delays in processing withdrawal requests due to the newness of the systems and processes. Funds that are ready to handle withdrawals will need additional time to process requests efficiently.