Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

The two pots have now reached boiling point, but, there are still ‘pot-holes’ that require attention

21 May 2024 Deirdre Phillips, Partner, Bowmans
Deirdre Phillips, Partner, Bowmans

Deirdre Phillips, Partner, Bowmans

Following extensive consultation and engagement, the Revenue Laws Amendment Bill, 2023 has been passed by both houses of Parliament and now awaits the President’s signature. The Pension Funds Amendment Bill, 2024 (PFAB) was passed by the National Assembly on 16 May 2024, and will be sent to the President for his assent.  

These Bills give effect to the establishment and the implementation of the two-pot retirement system that will come into effect on 1 September 2024.  

Come this Spring Day, all retirement funds (public and private sector funds) must be ready to implement the two-pot retirement system.  Essentially, what this means is that a member’s (and/or the employer’s) monthly contribution will no longer be in one ‘pot’, instead there will be three ‘pots’, the Savings Pot, the Retirement Pot, and the Vested Pot.  

With effect from 1 September 2024, retirement fund contributions will be split between two-pots.  One-third of the retirement fund contribution will be allocated to the Savings Pot and the balance (two-thirds) will be allocated to the Retirement Pot. A ‘savings withdrawal benefit’ may be withdrawn from the Savings Pot once every tax year without the need to terminate service.  Savings accumulated in the Retirement Pot will be preserved until a member’s retirement.  A member’s accumulated savings up to 31 August 2024 will vest in the Vested Pot.    

Despite the Bills having been passed, there are still a few ‘pot-holes’ that require fixing or clarification, in particular, when it comes to divorce proceedings.    

As an example, the PFAB provides that a fund may not, without the consent of a non-member spouse, permit a member access to his or her savings withdrawal benefit if the fund received written notification from the member or the non-member spouse with proof that divorce proceedings have been initiated as defined in the Divorce Act, 70 of 1979, or if an application has been made for a court order in respect of the division of assets of a marriage in accordance with the tenets of any religion.   

It is assumed that the reason behind the provision is to prevent a member from reducing the available patrimonial benefits (vis-à-vis the available ‘pension interest’) that may potentially be distributed to the non-member spouse. 

In terms of section 7(7)(a) of the Divorce Act, however, in the determination of the patrimonial benefits to which the parties to any divorce action may be entitled, the ‘pension interest’ of a party shall be deemed to be part of his or her assets. The automatic deeming provision, however, does not apply to a divorce action in respect of a marriage out of community of property entered into on or after 1 November 1984 in terms of an antenuptial contract by which community of property, community of profit and loss and the accrual system are excluded.  

In light of the above, why would a non-member spouse who (i) is married out of community of property and specifically contracted to exclude community of property, community of profit and loss and to accrual system; and (ii) is a party to divorce proceedings, have any ‘say’ over a member’s right to access his or her savings withdrawal benefit, let alone consent to the access.  Or, does a party’s chosen marital regime no longer matter because, in terms of the proposed PFAB, the provisions of the Pension Funds Act, the Post and Telecommunications-related Matters Act, the Transnet Pension Fund Act, and the Government Employees Pension Law, will override the provisions of the Divorce Act in the event of a conflict.  Does this then have the effect that a party’s pension interest automatically forms part of the non-member spouse’s assets – regardless of the party’s chosen and contracted marital regime? 

Another matter that requires clarification is whether the consent of a non-member spouse is required only in respect of divorce proceedings initiated on or after 1 September 2024, or whether consent will be required in respect of any pending divorce proceedings. 

How the two-pot system will practically be implemented is to be seen.

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