All retirement funds, not only those that fall under the Pension Funds Act (PFA), will be included in the two-pot retirement system that is scheduled to take effect on 1 March 2024.
The two-pot system provides for the compulsory preservation of two-thirds of a member’s retirement benefit, while allowing him or her to access up to one-third each year before reaching retirement age, without having to resign.
The system will apply to pension, provident, preservation, and (non-legacy) retirement annuity funds. It also applies to defined-benefit funds, which pay a benefit based on a member’s years of service and salary at retirement. The fund pays the retired member a pension, which is generally guaranteed, for the rest of his or her life.
Most retirements funds in the private sector are defined-contribution funds. These funds do not pay retirees a guaranteed pension for the rest of their lives. When a member retires, the fund pays out a benefit, the size of which depends on the contributions received from the member (and his or her employer) and the investment returns earned by the fund on those contributions.
Some retirement fund administrators approached by Moonstone said it was unclear from the draft legislation whether the two-pot system will apply to DB public sector funds or only to funds that fall under the PFA.
Some retirement funds that cover state employees are governed by their own legislation. For example, the Government Employees Pension Fund (GEPF) is governed by the Government Employees Pension Law, while the three Transnet funds are regulated by the Transnet Pension Funds Act.
Moonstone asked National Treasury whether, when the first phase of the two-pot system is implemented next year, retirement funds that do not fall under the PFA will be included.
Treasury said the two-pot system changes will apply to all retirement funds, including public sector funds such as the GEPF and the Transnet funds.
The GEPF is the largest retirement fund in South Africa, with more than 1.265 million active and about 473 312 pensioners and other beneficiaries.
Withdrawals and seeding
The two-pot system will require all retirement funds to create a savings component (pot) and a retirement component. From 1 March 2024, one-third of a member’s contributions will go into the savings pot and the balance into the retirement pot. Members can make a full withdrawal once a year, subject to a minimum withdrawal of R2 000, from their savings pots.
So that members have money available to withdraw from their savings pot from 1 March next year, funds must “seed” members’ savings pot by transferring 10% of a member’s savings accumulated to 29 February 2024 to his or her savings pot. The transfer is capped at R25 000.
For DB funds, where the retirement benefit is based on a formula that considers a member’s years of service and final salary, accommodating annual withdrawals, as well as seeding, is not as straightforward as it is for DC funds.
National Treasury’s explanatory memorandum on the two-pot system says DB funds will be required to calculate the one-third contributions to the savings component with reference to one-third of the member’s pensionable service and the two-thirds contributions to the retirement component with reference to two-thirds of the member’s pensionable service with effect from 1 March 2024. Seed capital will be calculated in the same way and “can be accommodated with a past service adjustment”.
Gary Mockler, the chief executive of financial advisory business GTC, says this means DB funds will accommodate withdrawals by reducing a member’s retirement benefit, which will be done by reducing the member’s years of service.
Effectively, for every new year of service completed, a member will be credited with only two-thirds of a year in terms of the retirement pot. A member will be credited with a full year’s service only if she transfers the money in her savings pot to her retirement pot.
Rowan Burger, the head of strategic finance at Momentum Metropolitan, says a DB fund’s liability in respect of a member is often referred to as an actuarial reserve value (ARV).
Burger explains what Treasury is proposing regarding seeding with the following example. A member has been in service for two-and-a-half years (30 months) and his ARV is R250 000. The fund seeds his savings pot with R25 000, which is exactly 10% of his benefit.
The fund will reduce the member’s pensionable service by 10% to compensate for the withdrawal. The pensionable service date will be moved forward by three months (10% of 30 months) to achieve this.
I am a GEPF member with 28 years working experience. I am confused by the 2 pot system. When I read about this 2 pot system it seems that only people with Retirement Annuity will benefit from 1st March 2024.
The two-pot systems applies to all retirement funds, including the GEPF.
This video might help you to understand the system better: https://www.youtube.com/watch?v=IEagcNxSZ68
i will appreciate to get my 10 % of my pension
I don’t understand the R25 000 capped issue. If my 33% is R300 000, 00 does this mean I will only be able to withdraw only R25 000?
The R25 000 cap applies to the initial seeding of your savings pot, so there is money to withdraw in the first year of the two-pot system. The savings pot is seeded by transferring 10% up to R25K of the money you have accumulated by the implementation date. You have the option of withdrawing everything in your savings pot, subject to a R2 000 minimum, once a year.
I’m still not clear here, if my 1/3 is R300 000, can I get all of it at once?
You can take all of the money in your savings pot.
What will happen if I do not take anything from my seeded funds. Will this be taken back to the retirement pot?
Retirement funds will have to seed the savings pot – transfer up to R30 000 (current proposal). If you do not withdraw money from the savings pot, it will stay there. You can ask the fund to move the money to your retirement pot.
If you already a retired pensioner are you included or exclude in this retirement pit savings?
Your retirement fund will be included. But if you are no longer making contributions (you are retired), the two-pot system will not affect you.
Hi, is this final is it going to happen
The new 2 pot system for the GEPF should not be implemented in 2024. Taking monies out of the pension fund will actually reduce the pensionable amount at the time of retirement. This can be disastrous to the GEPF. There are no systems in place for the new 2 pot system. No workshops have been conducted. Is this another form of corruption & mismanagement of funds.
2024 is too soon for implementation. Employees have no idea about the new system & how it is going to be implemented.
When employees resign from the GEPF , whether the old or new system, please note they are completely out of the system, they should be entitled to all the resignation benefits. We pay Tax on our gross salary, so i cannot understand why the resignation benefits are Taxed so heavily again.
The new 2 pot system for the GEPF should not be implemented in 2024. Taking monies out of the pension fund will actually reduce the pensionable amount at the time of retirement. This can be disastrous to the GEPF. There are no systems in place for the new 2 pot system. No workshops have been conducted. Is this another form of corruption & mismanagement of funds.
2024 is too soon for implementation. Employees have no idea about the new system & how it is going to be implemented.
Please note: resignation means you are coming out of the system, whether old or new system, an employee is entitled to all their resignation benefits. We are Taxed on our monthly gross salary, why are we being heavily Taxed on the resignation benefit.
Are you trying to help people to reduce their debts, since unemployment is too high even those that are working are now struggling since everything in our country is expensive? Don’t you think 10% is less & this will only benefit those that are earning better salary, those that are not earning enough they are still going to struggle more? Example If i have 600 000 am.i still getting 25k? How is it going to help me because is too little, atleast if you were saying minimum 50k that was going to be reasonable, I believe you are trying to assist but not to make jolek to south African Citizens
Hi I would like to get a clarity on how the system will work for GEPF members,
Is it possible to take the 10 % then take an early retirement after a year
How will my pension be affected
Thanks
say for instance im 20yrs in service and my estimated amount 1,5m+ why cant my seeding capital be at 150k thats 10% we dont qualify for homeloans neither for RDPS or subsidies isn,t this supposed to uplift us
Good day I just want to know what will happen if I resign
Our people are being misled if you listen to the two pot system it’s really 3 pots if you have 200000 transferred to savings pot that money is not ecsesseble every year for starters 30000 will be moved to second savings pot and a third of monthly contributions will be pay into 2nd savings pot a third example is 1300 that means you can withdraw 30000 from 1 September 2024 that means you will have a balance of 1300 plus interest multiplied by 13pp times 11 months the following year you should have plus minus 15000 in second pot the pot of 200000 you can not withdraw from