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Listen: Treasury explains the two-pot retirement system

Oct 6, 2023

On 1 March 2024 there will be a radical change affecting everyone who is a member of a retirement fund, with the implementation of what has come to be known as the “two-pot retirement system”.

This change will apply to every member of an employer pension/provident fund, a retirement annuity, or a preservation fund – including members of the Government Employees Pension Fund (GEPF).

There have been many questions and complaints about how the new system will work, especially when it comes to withdrawals. In this podcast I put some of these questions to Basil Maseko, a Director of Tax and Financial Sector Policy at National Treasury.

Maseko points out that one of the reasons that National Treasury is implementing this new system is to create a system of “enforced savings” among South Africans.

In the podcast, Maseko also addresses the following points:

  • Why government decided to implement this system now;
  • What impact National Treasury expects this new system to have on retirement outcomes;
  • How this new system will affect members of the Government Employees Pension Fund (since the GEPF is a defined-benefit fund), and whether the GEPF administrators will be ready for the new system in time;
  • How National Treasury chose the 10% figure (up to a maximum of R30 000) that retirement fund members can transfer to their savings pot (and withdraw, if they so choose) on 1 March 2024; (*Note: the maximum figure was increased from R25 000 to R30 000 in late October 2023.)
  • What discussions have been had with the retirement industry about issues surrounding liquidity, if millions of people choose to withdraw the maximum 10%/R30 000 from their retirement funds on 1 March 2024;
  • Why and how withdrawals from the savings pot will be taxed;
  • What will happen in the case of divorce or retrenchment.

Treasury explains the two-pot retirement systemMaseko concludes: “The key is that your retirement fund is for retirement, so as much as possible, let’s try and keep it that way!”

Further reading

For more details on the two-pot retirement system, read this article.

8 Comments

  1. Hi, Maya please inform me with regard to this proposed two pots system and the amount of 30 000 withdrawal from savings pot. As I have just said R30 000 is just not going to do nothing for me to the building project I have planned. I have heard the Treasury department proposing that defined benefit funds work differently from defined contribution funds used in the private sector. Therefore the way the savings pot is calculated will be different. The Treasury proposal is that defined funds will be required to base allocations according to the years of service and adjust accordingly. Please update on this one when that happens, Maya

    Reply
    • I am doing a series with GEPF to explain how defined benefit funds will work but the short answer is that it will also be limited to the R30 000.

      Reply
  2. I have a building project that will cost me R300 000:00, will this amount help me in this regard? R30 000 is far two low for me and what can I do with the small money like that? I have 34 years in service and according to my GEPF account I have accrued at least 3.4 Million to my pension and surely I can still withdraw even R500:000 on my account, why not? R30 000 is my monthly salary and you telling me that will be enough for me even if I am still getting it on my monthly salary!!! Tell me more about this!!!

    Reply
    • Sorry those are the rules. The government wants to make sure that people have enough put away for retirement. The R30 000 limit is for various reasons – it is aimed at lower income earners who may be in more desperate need of financial assistance for emergencies. There is also a concern about a systemic risk to the pension fund if everyone started to withdraw larger amounts. These would require significant dis-investments which could have a very negative affect on markets.

      Reply
  3. Hi Maya

    I was hoping you would ask if this new system applies to all including those who have been saving over the years or is it for those who will only be starting to save from 1 March 2024?

    Reply
    • It is for everyone – whether you have existing retirement funds you are contributing to or whether you are starting to save for retirement. However the split in contributions only affects contributions you make from 1 March to your existing retirement fund

      Reply
  4. Maya I want to know what happens to the savings if I don’t make any withdrawals, does this amount grow like my retirement pot or will it not? Do I have the option to not participate in this new system? I currently have my GEPF, a preservation fund and an RA.

    Reply
    • It will grow – but what we are still waiting to find out is how retirement fund managers will invest the savings pot. I suspect they will give you an option to select a fund you would like your savings pot invested in. Only a person who was 55 or older in March 2021 will not have to participate – otherwise it applies to everyone. But remember you do not have to withdraw the savings and you can transfer the funds in the savings pot back to the retirement pot

      Reply

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Maya Fisher-French author of Money Questions Answered

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