Pension Funds Amendment Bill In South Africa In 2024: What You Need to Know

The Pension Funds Amendment Bill 2024 introduces significant changes to South Africa’s pension system.

Aimed at improving the retirement outcomes for workers while offering flexibility during times of financial hardship, the Two-Pot Retirement System will take effect from 1 September 2024.

This article breaks down the key changes, eligibility criteria, and how these reforms impact pensions and allowances.

Overview of the Pension Funds Amendment Bill 2024

On 16 May 2024, the National Assembly passed the Pension Funds Amendment Bill, which was then sent to the President for assent.

The bill paves the way for the Two-Pot Retirement System, designed to enhance financial security while giving employees limited access to their retirement savings before they reach retirement age.

Under the Two-Pot System, employees’ retirement savings will be split into two components:

1. Retirement Pot: Two-thirds of contributions, reserved strictly for retirement.
2. Savings Pot: One-third of contributions, which employees can access for emergencies or other financial needs before retirement.

This shift represents a significant change from the current system, where retirement savings are generally locked until retirement.

Key Changes to Pensions and Allowances

The Pension Funds Amendment Bill introduces more flexible withdrawal options for workers, allowing them to access a portion of their retirement savings under specific conditions. Here are the major changes:

1. Partial Withdrawals Before Retirement

Previously, employees could not access their retirement savings until they retired or left their job.

With the new system, employees will be allowed to make one withdrawal per year from the Savings Pot, provided the amount is not less than R2,000.

The remaining balance in the account will continue to grow tax-free until the funds are withdrawn.

2. Improved Financial Flexibility

The Two-Pot System is designed to provide relief to individuals facing economic hardships.

For example, fund members who are in debt or face unexpected expenses can withdraw from their savings pot, without needing to wait until retirement.

This change aims to prevent individuals from resigning early to access their retirement savings, a common practice under the current system.

3. Tax-Free Growth

Funds in both the Retirement Pot and Savings Pot will benefit from tax-free growth until the point of withdrawal, allowing for the accumulation of more wealth for retirement.

Eligibility for the Two-Pot System

Eligibility under the Pension Funds Amendment Bill 2024 is straightforward, with a few exceptions and specific rules:

• The Two-Pot System is available for all public and private sector retirement funds.
• It excludes non-participating members, such as those in dormant, closed, or liquidated funds, and beneficiary funds.
• Members who were 55 years and older on 1 March 2021 and have consistently contributed to their retirement funds are considered eligible.
• The system also applies to any employees making retirement contributions as of 1 September 2024. Future contributions will be divided between the Retirement Pot and Savings Pot.

How to Claim from the Two-Pot System

While there is no new formal claim process for provident funds under the Two-Pot System, members should ensure they are actively contributing to the system to benefit from these reforms. Key points to keep in mind include:

• Ensure accurate contact details are provided to your retirement fund to receive updates.
• Monitor communications from fund administrators regarding the implementation of these reforms.
• Plan withdrawals strategically: Withdrawals from the savings pot will attract less tax if deferred until retirement.

Initial Seeding Capital

As of 31 August 2024, 10% of the fund value or R30,000, whichever is lower, will be allocated to the Savings Pot as seed capital. This is a once-off transfer designed to kickstart the new system. Members will not be able to repeat this transfer in future years.

Planning for Retirement Under the Two-Pot System

The introduction of the Two-Pot System ensures that members have access to a portion of their retirement savings to deal with financial crises, without sacrificing their long-term retirement goals.

Employees will now have the flexibility to withdraw part of their savings while maintaining a larger portion for retirement.

This system seeks to prevent fund members from resigning or making early withdrawals that may compromise their financial security during retirement. At the same time, members can preserve part of their retirement savings, even while making withdrawals.

The Pension Funds Amendment Bill 2024 introduces much-needed flexibility for South African workers, allowing them access to a portion of their retirement savings in times of need while securing long-term retirement benefits.

With the Two-Pot Retirement System, members can plan for a comfortable retirement while managing short-term financial challenges.

For more information, stay updated on the official South African government website or consult your retirement fund administrator to understand how these changes affect your retirement savings.

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