Ramaphosa signs Pension Funds Amendment Bill into law to implement two-pot retirement system

President Cyril Ramaphosa has signed the Pension Funds Amendment Bill into law.

The bill amends pension-related legislation to enable the implementation of the recently legislated two-pot retirement system.

The new Pension Funds Amendment Act amends the Pension Funds Act of 1956, the Post and Telecommunications-Related Matters Act of 1958, the Transnet Pension Fund Act of 1990 and the Government Employees Pension Law of 1996.

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The law provides for the introduction of the savings withdrawal benefit, the appropriate account of a member’s interest in the savings, retirement and vested components, and the deductions that may be made.

According to the Presidency on Sunday, the Act requires pension funds to amend their rules, adjust their investment portfolios and prepare administrative systems for pension fund members to apply to access portions of their pension funds from 1 September 2024.

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This law complements the Revenues Laws Amendment Act, 2024 (Act No. 12 of 2024), which was signed by the President on 11 June 2024.

How it works

Government has proposed a reform to the retirement saving regime, which will see the introduction of the “two-pot” retirement system.

From the proposed date of 1 September 2024, one-third of retirement contributions will be split into a savings component and two-thirds into a retirement component.

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“What is in the ‘savings component’ will be available for withdrawal at any time before retirement. The ability to unconditionally access amounts from the ‘savings component’ will be provided without the member having to cease employment or having to resign. A member will be allowed to make a single withdrawal within a year of assessment.”

A member can make a minimum withdrawal amount of R2,000 and the ability to withdraw from the “savings component” will be applicable on a per fund or per contract basis.

Withdrawals from the “savings component” will be added to the individual’s taxable income and will be taxed at their marginal tax rates.

From 1 September 2024, Retirement Funds will be required to create another component known as the “retirement component”, which will be housed within the current retirement fund.

Individuals will be required to contribute an amount of two-thirds of the total individual retirement fund contributions to the “retirement component”.

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The assets in the “retirement component” will be required to be preserved until retirement.

Once a member has reached retirement age and retires, the “retirement component” is to be paid in the form of an annuity (including a living annuity).

Two-pot retirement system campaign

Meanwhile, the Financial Sector Conduct Authority (FSCA) has launched a retirement funds Know Your Rights campaign to educate the public about the two-pot retirement system.

The Know Your Rights campaign will explain how the two-pot system works and the impact it will have on a fund member’s retirement benefits.

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It will run until 30 September 2024.

“Besides the introduction of the two-pot retirement system, the campaign will also focus on other aspects of retirement funds, such as consumer rights, how retirement fund contributions work, and the recourse available to consumers when employers fail to make contributions,” said the FSCA last month.

“The FSCA is also collaborating with the financial industry and other key stakeholders to ensure that this campaign reaches as many South Africans as possible who are members of retirement funds.”