South Africa’s new ‘two-pot’ retirement system – start date and other proposed changes detailed

National Treasury has published draft legislation for the new two-pot retirement system, which it wants to take effect from 1 March 2024.
The new retirement system will allow members to access a small portion of their retirement funds in the event of an emergency while preserving the majority of the fund for retirement.
A savings pot will allow for one-third of all contributions, which a member can access before retirement. This is designed to help people in emergencies, such as the Covid-19 pandemic.
A second retirement pot will only be accessible at retirement and will require a minimum allocation of two-thirds.
A vested pot will also be present, holding the accumulated retirement savings from before the two-pot system is introduced.
The new draft legislation features the following key proposals:
- Implementation date: It is proposed that the legislative amendments to the “two-pot” retirement system should take effect on 1 March 2024.
- Proposal for seed capital: This makes provision for access by the member of the retirement fund to a portion of the available balance in the retirement fund on implementation date of the “two-pot” retirement system, i.e., 1 March 2024. In order to limit the adverse effect on liquidity, it is proposed that seed capital should be calculated as ten percent of the benefit accumulated in the “vested component” as at 29 February 2024, limited to R25,000, whichever is the lesser. It is important to note that when the member of the retirement fund withdraws the seed capital, it will be subject to the normal tax rates in the hands of the member.
- Legislative amendments to include defined benefit funds in an equitable manner: Defined benefit funds do not refer to contributions made by a member to the defined benefit fund to determine benefits, but rather use a defined formula to calculate benefits due to a member on retirement. To treat defined benefit funds equitably, it is proposed that changes be made in the revised draft bill to allow defined benefit funds to calculate the one-third contributions to the “savings component” based on one-third of the member’s pensionable service increase, and two-thirds contributions to the “retirement component” based on two-thirds of the member’s pensionable service increase with effect from 1 March 2024.
- Treatment of legacy retirement annuity funds: It is proposed that changes be made in the revised draft bill to make provision for the exemption of legacy retirement annuity fund policies from the provisions of the “two-pot” retirement system, as the inclusion of the legacy retirement annuity fund policies in the “two-pot” retirement system would require a re-design of these historically acquired legacy retirement annuity fund policies.
National Treasury said that legislative amendments for dealing with withdrawals from the retirement pot from a member that is retrenched and has no alternative source of income will be considered in the second phase of the implementation.
It added that further complementary measures will also be considered in the second phase to ensure that retirement savings are not compromised and to protect the liquidity of funds at all stages.
“Members of funds should be encouraged to only exercise the withdrawal option as a last resort, and to try and preserve their savings for retirement for when they retire,” treasury added.
Expert and fund member views
Although Robert Driman and Armand Swart from Werksmans Attorneys said that the new system should have a positive effect on fund members by offering them the best of both worlds, they stressed that the new legislation will hurt funds.
Driman and Swart said that the new legislation will require funds to change their rules, train their staff, educate fund members on the changes and introduce complicated systems.
Although industry bodies have expressed concern that there won’t be enough time to implement the changes, Sanlam said that the legislation will likely go through in 2024 as it is an election year.
Moreover, South Africans are divided over the new retirement system.
According to Sanlam’s 42nd Benchmark Report, 57% of respondents said that they were sceptical about the new Two-pot system, with many concerned that the new system will have a long-term effect on their retirement savings.
21% of respondents said that they would consider withdrawing emergency funds in an emergency, whilst 13% said that they were willing to access a portion of their benefits outside of this.
A mere 8% of respondents said that they would use the new two-pot system.
Interestingly, only 23% of respondents said that they wouldn’t withdraw from their savings.
Below is the draft legislation for the new “two-pot system”. Public comments are due by 15 July 2023: