South Africa’s New Two-Pot Pension System Set to Enhance Retirement Outcomes

In a milestone move for South African retirement structures, the National Treasury has expressed its approval for the recently signed Pension Funds Amendment Act (31 of 2024). The legislation inaugurates the last phase of reforms needed to operationalize the two-pot system set to launch on September 1, 2024, following the President's proclamation.

The two-pot system is a landmark reform of the country's retirement industry. It addresses the imperative to bolster South Africans' retirement outcomes by conserving a more significant part of their retirement funds while still providing room for controlled access during financial hardship. This transformation aims to avert scenarios wherein individuals are compelled to terminate their employment to dip into their retirement savings.

This system reimagines the retirement savings framework, boosting sustainability and introducing variation to meet diverse member needs. For those confronting genuine financial emergencies, the system represents a much-needed reprieve, affording access to emergency finances without falling prey to predatory lending practices.

Retirement funds and trustees are actively working on aligning their fund rules to reflect the changes in the act. Members should expect communication regarding new rule adjustments and the protocols requisite for submitting claims to access the benefits. Even though fund rule modifications are subject to Financial Sector Conduct Authority approval before being put into practice, the anticipation is that most funds will be prepared to actualize the contribution split between the savings and retirement components by the planned date.

As the gearing up phase proceeds, there's an understanding that funds may need additional time to process withdrawal inquiries beginning September 1, 2024. Given that the operational procedures and systems for handling such requests will be freshly set up or under installation, it’s anticipated that withdrawals might not be instant.

The Treasury urges members to obtain competent financial advice when contemplating withdrawals from the savings component, reminding them of the implications, including administrative costs and marginal tax rates on such transactions. There is also a cautionary note about the potential forfeiture of future growth and the intended retirement benefits these funds could have amassed.

For more comprehensive information, the National Treasury has made available resources on their website, including a FAQ on the two-pot retirement system and a detailed presentation detailing the workings of this significant reform.