Over the weekend, President Ramaphosa signed the Pension Funds Amendment Bill (‘the Bill’) into law. The Bill, which amends various pieces of pension-related statutes, including the Pension Funds Act, is essential to the reconfiguration of South Africa’s retirement savings system. In combination with the Revenue Laws Amendment Act, which was promulgated last month, the Bill gives legislative effect to the implementation of the two-pot retirement system.
Effective 1st September 2024, the two-pot retirement system splits all contributions to pension, provident, and retirement annuity funds into two components, namely a savings and retirement component. Designed to preserve retirement investments and offer economic flexibility, the system enables retirement fund members experiencing financial difficulties to access one third of their savings – the savings component – before retirement. Under the existing system, members frequently elect to resign or cash out their pension funds in order to access their savings and alleviate financial distress. The remaining two-thirds – constituting the retirement component – are only accessible on retirement.
The contents of the savings component are available for withdrawal at any time prior to retirement, with a minimum withdrawal amount of R2 000.00. Notably, however, members are only permitted to make one withdrawal in each year of assessment. For clarity, withdrawals will form part of an individual’s taxable income and will thus be taxed at the marginal rate. When a member reaches the retirement age and elects to retire, their retirement component will be paid in the form of an annuity.
Crucially, current provident fund members who were members of that fund and aged 55 or older on 1st March 2021, are not automatically included under the two-pot retirement system. Instead, they may elect to participate by applying to their provident fund on or before 1st September 2025. Those who opt in will not be permitted to reverse their decision.
To facilitate these system-wide changes, the Bill requires pension funds to amend their rules, adjust their investment portfolios, and prepare and implement administrative systems enabling members to access a portion of their funds in the event of an emergency.
For more information or legal assistance, contact us at info@stbb.co.za.
