The current draft bill does allow a savings pot component for preservation fund members.

There are several steps that still need to be taken to bring the so-called “two-pot retirement system” into law.

Although the National Council of Provinces approved the Pension Funds Amendment Bill, the draft Revenue Laws Amendment Bill of 2024 still needs to be passed by Parliament. However, it is unlikely there will be any significant changes.

Currently the draft bill affords preservation fund members who have already exercised their once-off withdrawal, another opportunity to access the preserved benefit.

Recap: How will the two-pot system work?

To recap, on implementation of the two-pot retirement system, two new “pots” or components will be created for new contributions. This affects all members of retirement funds – including government employees.

As from implementation date, currently set at 1 September 2024, any contributions to a retirement fund – whether that is a retirement annuity, pension fund or provident fund – will be split between a retirement pot and a savings pot. Two-thirds of the contribution will be paid into the retirement pot and one-third to the savings pot.

Once a year members can withdraw funds from the savings pot. There is no maximum limit, although the fund balance must be at least R2 000 before a withdrawal can be made. All amounts that are withdrawn will be subject to tax.

On implementation date, once-off “seeding capital” will automatically be transferred from a member’s existing fund balance into the savings pot. The seeding capital is limited to 10% of the existing fund balance with a maximum of R30 000. Members will be entitled to withdraw the seeding capital at any time.

But what about preservation funds?

Preservation funds are different from other retirement funds in that they do not receive new contributions. They preserve the funds which were transferred from a company pension or provident fund when an employee left a company. Technically the two-pot system does not apply as there would be no need to cater for future contributions.

All preservation fund members have the right to make a once-off withdrawal before retirement. If a member has not made a withdrawal, they could do so at any time before retirement. However, many members have already made a once-off withdrawal and do not have further access to their preservation funds.

National Treasury has confirmed that a savings pot will be created for preservation funds which will receive the same seeding capital of 10%, to a maximum of R30 000. This means that members who have already made their once-off withdrawal will still have access to the once-off seeding capital.

Frequently Asked Questions

National Treasury has provided clarity on various aspects of the draft Revenue Laws Amendment Bill of 2024. While changes are still possible, it is most likely that the Bill will be passed in its current form.

For further clarity on the new system, listen to my chat with Basil Maseko from National Treasury.

What is seeding capital?

Seeding capital is a once-off automatic transfer, on 31 August 2024, of money from your current retirement fund balance, to the savings pot. This amount will be 10% of your fund balance or R30 000 – whichever is the lower.

For example, if you have a R200 000 fund value on 31 August 2024, the seeding amount will be R20 000 (this being 10% of R200 000). If your fund value is R750 000, the seeding amount will be R30 000, because 10% of R750 000 is R75 000, which exceeds the cap of R30 000.

Are there limits to how much I can withdraw from the savings pot?

Any funds that accumulate in your savings pot may be withdrawn – the only limit is that you may only make a withdrawal once a year, and the minimum balance must be R2 000. But you do not have to make a withdrawal. You can treat the money in your savings pot in the same way as the money in your retirement pot, leaving it there to grow until you retire.

At any time in the future, should you need the money, you can make a withdrawal. There is no limit, and you could withdraw the full amount that has accumulated in the savings pot.

Can I withdraw my retirement fund if I resign, or I am retrenched?

Under current retirement rules, if you change jobs or are retrenched you can withdraw your pension or provident fund. You will continue to retain that right on your existing retirement fund.

On 31 August 2024, your existing fund balance will be separated from the retirement pot and savings pot. Your existing funds on 31 August will be ring-fenced (referred to as the vested pot) and all rights you currently have will be protected.

This means that if you resign or are retrenched, you can access all funds in the vested pot. You will also be able to access any funds that have accumulated in the savings pot. At this stage the funds in the retirement pot (from contributions made after  1 September 2024) will not be accessible at retrenchment, however, this is being reviewed and will form part of phase two of the two-pot retirement system.

It is important to note that if you are a member of a retirement annuity, for the first time you will be able to access part of your funds before retirement. While you may not access existing funds, after 1 September 2024 you will have access to the seeding capital, as well as any funds that accumulate in your savings pot after that date.

How will funds be allocated in the case of a divorce?

A retirement fund can only carry out a court order. The fund would need to receive a divorce court order to pay out the member’s pension interest to the ex-spouse. Once the new retirement system is implemented, the funds will be withdrawn equally from each pot. For example, if the ex-spouse is entitled to 50% of the retirement benefit, this would entitle the ex-spouse to 50% of the vested pot, 50% of the retirement pot, and 50% of the savings pot.

This article first appeared in City Press.