Industry body welcomes two-pot retirement system

The Institute of Retirement Funds Africa (IRFA) has joined companies in the pension fund industry to welcome the president signing one of the bills required to establish the two-pot retirement system into law.

President Cyril Ramaphosa signed into law the Revenue Laws Amendment Bill that establishes the two-pot retirement system on Friday. The two-pot retirement system will allow members of retirement funds to access a portion of their retirement savings while still employed.

Geraldine Fowler, president of the Institute of Retirement Funds Africa, says the two-pot retirement system will offer retirement fund members an opportunity to think more about their retirement savings.

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Wayne Hiller van Rensburg, executive officer and spokesperson for IRFA, says the organisation consistently endorsed retirement reform and the impact the establishment of the system will have on assisting members in the short-term while securing future benefits.

“This system provides flexibility for fund members that was not available in the past. Members will now need to engage with their retirement funds more often and consider the long-term impact and the taxation of benefits,” said Hiller van Rensburg.

President must now sign Pension Funds Amendment Bill

“However, we are waiting for the president to sign the Pension Funds Amendment Bill and look forward to its signature, which is necessary for full clarity but not necessary for the implementation of this reform on 1 September,”Hiller van Rensburg said.

Fowler and Hiller van Rensburg assure members of retirement funds and the sector as a whole that, in line with its mandate, the IRFA will continue to share important information to support all stakeholders in effectively implementing and realising the beneficial potential of the two-pot retirement system.

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However, while many pension fund members are waiting to get access to their funds, pension fund administrator Sanlam has urged members to pause and think before withdrawing funds from their savings pot.

“We fully support the new system which seeks to balance immediate financial struggles with long-term security. Financial advice and education will be key to enabling people to make informed decisions through understanding the long-term impact of withdrawals.

“It is important to encourage people to learn about the two-pot retirement system, understand the consequences of making an early withdrawal and plan for what that means for your future self,” said Lorraine Mekwa, managing executive at Sanlam Corporate.

All retirement savings to be split from 1 September

Lize de la Harpe, senior legal advisor at Sanlam Corporate, says from 1 September all new monthly retirement contributions will be split, with a third going to the emergency savings pot and two-thirds to the retirement pot.’

For example, she says, if you contribute R300, R100 will go to emergency savings and R200 to the retirement pot. You will then be allowed one annual withdrawal from the emergency savings, subject to a prescribed minimums of R2 000.

She says consumers must note that marginal tax will be levied on every withdrawal. A financial adviser can help you think through your options and analyse the opportunity costs of big financial decisions.

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Mekwa says ultimately, the new two-pot retirement system means that South Africans can now access some of their savings without having to resign or cash out their pension funds. “This brings more flexibility but also the need for caution and a well-considered financial plan.

“We are committed to supporting individuals to save enough to retire comfortably. Our north star is to empower more people to be financially confident, secure and prosperous. A big part of this is walking the retirement journey alongside individuals at every life stage.”

Access to 10% of your retirement savings

De la Harpe explains that from 1 September, you will have access to 10% of the value of your retirement fund, or up to R30 000, that will automatically be allocated to your emergency savings pot. Any new contributions you make from that date will be split between your pots, with two-thirds going to the retirement pot, which will remain inaccessible until you retire.

The initial seeding calculations, which are based on the market value of each person’s existing retirement savings at the end of August 2024, will determine how much goes into each pot.

All retirement funds must now participate in the two-pot retirement system, but you do not need to withdraw money from your emergency savings pot if there is no emergency. Investment returns will not be affected by the split between pots.

De la Harpe says the president must sign the Pension Funds Amendment Bill to pave the way for the changes in the retirement system to be fully implemented. She also stresses the tax implications of a withdrawal.

“You will pay tax on every withdrawal you make. You must also settle any outstanding taxes you owe before you can access your funds. Sars must still finalise its business requirement specification requirements for tax directive applications.”