Two-Pots Pension System: 7 useful things that retirement fund members should know

Naheem Essop

With the implementation of the two-pot retirement system around the corner, retirement funds and their members have certain expectations come 1 September 2024.

The new system allows members to withdraw one-third of their retirement savings while still employed, and the remaining two-thirds are only accessible when they reach retirement age.

Here are seven useful things that members should know:

1. Retirement contributions plus investment return until 31 August 2024 will be placed in the “vested component”. The vested component can be saved until retirement or accessed when a member resigns, is dismissed, or retrenched. These savings are, in general, not subject to the new system and cannot be accessed while the member is still employed.

2. Two-thirds of contributions on or after 1 September 2024 will be placed in a “retirement component”. This component will be invested and can only be accessed at retirement age. Members cannot withdraw from this two-thirds when they resign, are dismissed, or retrenched.

3. One-third of contributions made on or after 1 September 2024, together with investment return, will be placed in a “savings component”. A member can withdraw a minimum of R2 000 once per tax year from the savings component.

4. On 1 September 2024, the savings component will be given “seeding capital” to fund a withdrawal claim. This will comprise 10% of retirement savings until 31 August 2024. However, this will be subject to a maximum of R30 000. If 10% is more than R30 000.00, the seeding capital will be capped at the maximum. Conversely, if 10% is less than R30 000.00, the seeding capital will only constitute 10% and not more.

5. Members who claim a withdrawal from the savings component on 01 September 2024 should not expect to be paid R30 000 on 1 September 2024 because the withdrawal is subject to tax. A fund must apply for a tax directive from SARS, which will instruct the fund on how much to deduct from the benefit before payment. A fund’s administration system may not have been upgraded to process claims. Funds must communicate such challenges to members. Members aggrieved by this may approach the Office of the Pension Funds Adjudicator (OPFA) to lodge a complaint.

6. Withdrawals from the savings component may only be made once in a tax year (01 March to the end of February of the following year).

7. If a member does not withdraw during a tax year, their savings pot rolls over to the next tax year, enabling them to accumulate a larger pot before withdrawing.

A fund’s administration system may not have been upgraded to process claims. Funds must communicate such challenges to members. Members aggrieved by this may approach the Office of the Pension Funds Adjudicator (OPFA) to lodge a complaint. However, before doing so, they must lodge the grievance with the fund’s trustees to allow them to resolve it within 30 days before the OPFA can investigate.

It is important for members to understand what they are entitled to under the new system and how it will operate. The OPFA has geared up to deal with complaints or queries that may arise from the two-pot system, and members seeking clarity are encouraged to contact the OPFA: enquiries@pfa.org.za