National Treasury expressed its satisfaction as the President signed the Pension Funds Amendment Act (31 of 2024) into law, marking the final step in implementing the two-pot system set to begin on 1 September 2024. This act introduces crucial changes to various pension-related laws, including the Pension Funds Act of 1956 and the Government Employees Pension Law of 1996, essential for retirement funds, including public sector funds, to adopt the two-pot reform.
The primary objective of the two-pot system reform is to enhance retirement outcomes in South Africa by preserving a larger portion of retirement savings for members upon retirement. This reform also allows limited access to funds in cases of financial hardship without necessitating resignation from employment.
The new two-pot retirement system aims to establish a more sustainable fund structure while offering flexibility to meet the diverse needs of members. It provides a safety net for individuals facing genuine financial crises, enabling them to access emergency funds without turning to predatory lenders or forfeiting their jobs to tap into their retirement savings, all while safeguarding a significant portion of those savings for retirement.
Currently, retirement funds and trustees are in the process of adjusting their fund rules in line with the legislative changes. They are expected to communicate these rule modifications and the procedures for withdrawing savings benefits to fund members. Before implementation, any amendments to fund rules must receive approval from the Financial Sector Conduct Authority. Most funds are on track to implement the new contribution split into the two components (savings and retirement) on 1 September 2024, as scheduled. They will calculate the seeding capital value based on the vested component as of 31 August 2024, allowing for transfer to the savings component and member access from 1 September 2024. However, some funds may not be immediately equipped to process withdrawal requests on the designated date due to new systems or installation processes. Funds prepared for withdrawals will also require time to handle requests efficiently.
National Treasury advises fund members to seek reliable financial guidance to understand the implications of withdrawals from the savings component. Members should be aware that administration costs and marginal tax rates will be deducted from such withdrawals, resulting in the loss of potential future growth and the original retirement benefits intended for those funds.
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