The implementation of the Two-Pot Retirement System does not affect benefits earned up until 31 August.
On 1 September the Two-Pot Retirement System will be introduced. It changes how all future contributions and benefits to retirement funds in South Africa are treated, including the Government Employees Pension Fund (GEPF).
The reason for these changes is to improve retirement outcomes while providing members access to a portion of 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 members have sufficient income in their older years.
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How pensionable service will be allocated from 1 September
The implementation of the Two-Pot Retirement System does not affect benefits earned up until 31 August. Years of service earned up to 31 August 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.
New retirement fund dispensation starting September
Example: A year after implementation
What a pension fund statement could look a year 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 eight months of retirement service; and
. Savings pot would reflect four months of savings service.
Providing access for life events
A special, once-off transfer of “seed capital” will be added to the savings pot. 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.
Members will be able to access any funds in their savings pot once a year. There is no limit on how much the member may withdraw from the savings pot.
READ: Personal Finance | Why the Two-Pot System will improve retirement outcomes
However, the minimum withdrawal amount is R2 000. That means a member must have a balance of R2 000 or more in the savings pot to make a withdrawal.
. Note that all withdrawals will be taxed at a member’s marginal tax rate. This means a member 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 a member withdrew the full value of the savings pot each year, a member would reduce their benefit by four months for every one year of pensionable service. This would significantly reduce the gratuity paid at retirement. The withdrawal will also be fully taxable at the member’s 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.
READ: Personal Finance | Preservation fund members can access savings pot
Prior to retirement, these funds will only be available upon death or ill-health. If a member resigns or is retrenched they would have access to their vested pot and savings pot. However, the retirement pot will be preserved within the GEPF and will be paid as a deferred pension once the member retires. Alternatively, a member 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 the 31 August 2024 will be protected and the same rights will be retained. This is known as your vested service and commonly referred to as the “vested pot”. This means that if you had 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.
The next article will explain what happens to member funds should they resign after 1 September
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