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President Cyril Ramaphosa has given the green light to the Pension Funds Amendment Bill, marking a significant milestone in the reform of South Africa’s retirement savings landscape. The new legislation enables the implementation of the Two-Pot Retirement System, designed to bolster retirement savings while providing limited access to funds in emergency situations.
The Two-Pot Retirement System allows individuals to access a portion of their retirement savings before retirement, while preserving the majority for long-term financial security. From September 1, 2024, retirement contributions will be divided into two pots: a savings pot (one-third) and a retirement pot (two-thirds). The savings pot will be accessible for emergencies, while the retirement pot will be preserved until retirement.
The new rules will apply to new contributions after September while existing retirement savings will be ring-fenced as the vested pot, subject to existing rules. Key features include a once-off 10% transfer of existing savings capped at R30 000 to the savings pot with minimum withdrawals of R2 000 and tax implications.
This reform aims to strike a balance between accessibility and long-term financial security, and employers and employees must prepare for this change. As of September 1, 2024, South Africans with pension funds, provident funds, retirement annuities, or preservation funds will be able to take advantage of the Two-Pot Retirement System.
