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Understanding the two-pot retirement system for GEPF members

by | Jul 30, 2024

This is a four-part educational series on the two-pot retirement system for GEPF members. Over the next four weeks the various aspects of the two-pot retirement system will be unpacked, and members’ questions will be answered.

On 1 September 2024 the so-called two-pot retirement system will be introduced in South Africa. It changes how all retirement funds in South Africa operate, in terms of both contributions and benefits. The changes also apply to the Government Employees Pension Fund (GEPF).

The reason for these changes is to improve retirement outcomes while providing members access to a portion of their retirement savings prior to retirement.

By providing limited access to funds prior to retirement, the government recognises that members experience life events during their working years which may require access to emergency funds. However, by requiring a portion of the fund to be preserved until retirement, the government aims to ensure that members have sufficient income in their older years.

How pensionable service will be allocated from 1 September

The implementation of the two-pot retirement system does not impact benefits earned up until 31 August 2024. Years of service earned up to 31 August 2024 will remain separate and are referred to as “vested service”.

However, all pensionable years of service from 1 September will be split between retirement service and savings service. Two-thirds of pensionable service will go to the so-called “retirement pot” and one-third to the “savings pot”.

For GEPF members this means that for every year of future pensionable service, four months will be allocated to savings service and eight months will be allocated to retirement service.

Members will receive a single benefit statement that separately reflects the benefits in each pot.

Example: A year after implementation

This is an illustration of what a pension fund statement could look like 12 months after implementation. This assumes 16 years of service as at 1 September 2025 based on the member accumulating 15 years of pensionable service up to 31 August 2024 and an additional year of service up to 1 September 2025. This also assumes that you do not make any withdrawal between 1 September 2024 and 1 September 2025.

  • Vested pot would reflect 15 years of pensionable service.
  • Retirement pot would reflect 8 months of retirement service
  • Savings pot would reflect 4 months of savings service.

Providing access for life events

A special, once-off transfer of “seed capital” will be added to your savings pot on 1 September 2024. This is an amount equal to 10% of the benefit value of your fund as of 31 August, however this is capped to a maximum of R30 000.

You will be able to access any funds in your savings pot once a year. There is no limit on how much you may withdraw from the savings pot, however the minimum withdrawal amount is R2 000. That means you must have a balance of R2 000 or more in the savings pot in order to make a withdrawal.

Note that all withdrawals will be taxed at your marginal tax rate. This means you will receive the funds, less tax.

Members are encouraged to only withdraw these funds for emergencies, as any withdrawal will reduce their retirement outcomes. If you withdrew the full value of the savings pot each year, you would reduce your benefit by four months for every one year of pensionable service.

This would significantly reduce the gratuity paid to you at retirement. The withdrawal will also be fully taxable at your marginal tax rate.

Protecting your retirement

The funds in the retirement pot will not be accessible before retirement. This will ensure that when members resign or change jobs, they do not deplete the funds required for their retirement years.

Prior to retirement, these funds will only be available upon death or ill health. If you resign or are retrenched, you would have access to your vested pot and savings pot, however your retirement pot will be preserved within the GEPF and will be paid as a deferred pension once you retire.

Alternatively, you could opt to have the full benefit transferred to an approved retirement fund.

Protecting your vested service

The two-pot retirement system will only affect future contributions and benefits. The years of pensionable service at 31 August 2024 will be protected and the same rights will be retained. This is known as your vested service and is commonly referred to as the “vested pot”.

This means that if you were to resign from the GEPF, you would still be able to withdraw the value of your vested service. In fact, your vested pot is payable to you on all forms of exit. The value of the vested service will be based on existing GEPF rules and will be determined by salary and actuarial factors.

In the next article we will explain what happens to members’ funds should they resign after 1 September 2024.

This article first appeared in City Press.

9 Comments

  1. In this two pot system government employee with over ten years service will they still get the monthly payment from GEPF .

    Reply
    • yes, in our next article and video we cover what happens at retirement

      Reply
  2. This is a total scam because the government knows very well how public servants are in debts. Why can’t we access vested pot money (the amount we need)instead of getting it from savings pot? The 10% seed transferred to the savings where does it come from?

    Reply
    • 10% is transferred from your vested pot. Government is concerned about you reaching 60 and not having enough money to live on

      Reply
    • Strongly agreed with Buyiswa ‘comment. We really in debts and needs urgent assistamce but the manner government explained these pots draws a big question as to what will be happened to so called vested pot once i withdraw from saving pot

      Reply
  3. Actually how much im going to get with 13 years service In the police forc

    Reply
    • Hi, Thanks for this educational information and it is clear although there are concerns I just want to find out something here we are talking about GEPF where the two pots will come from but what about my own savings with another institution as I have been saving money for my own benefits and the there will be one pot for government(GEPF) and another pot for my separate savings,please clarify
      Regards

      Reply
      • Your other retirement funds will have the same rules regarding how the contributions are split. The only difference is that it will not relate to years of service but actual rand contributions and balances. But any savings outside of an official retiremetn product are not affected

        Reply

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Maya Fisher-French author of Money Questions Answered

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