The two-pot system allows financially strained fund members to withdraw a limited amount from their pension savings from what’s termed a savings pot, benefiting employees across various sectors. Particularly for the hospitality and leisure industry, which experiences high staff turnover, this system may provide access to emergency pension funds without necessitating resignation.
Scheduled for implementation on 1 September 2024, South African retirement plans will introduce the two-pot system. This scheme will permit eligible retirement fund members to access a savings pot (once per tax year) that will initially contain 10% of their retirement fund capital, capped at R30 000 and subsequently one-third of all ongoing retirement fund contributions. Withdrawals will be subject to taxation at the marginal tax rate.
The system also mandates the long-term preservation of the remaining two-thirds of retirement fund contributions into a retirement pot from 1 September 2024, ensuring that savings are available at retirement.
This reform is particularly beneficial for industries like hospitality, where previously, employees might leave their jobs simply to access retirement savings, often to manage debt. Now, they can access their savings pot annually without resigning. While access to the savings pot might not drastically reduce members’ debt, it could lessen job-hopping within the industry.
Background to the two-pot system
The two-pot system originated during the COVID-19 pandemic, a period marked by significant financial strain to provide a mechanism for quick access to funds while ensuring substantial retirement savings. The hospitality sector, severely impacted during the pandemic, saw urgent need for access to alternative income sources.
Today, many employees, particularly in the recovering hospitality sector, continue to face the repercussions of past financial hardships. The two-pot system also aims to encourage saving, addressing concerns that many South Africans do not adequately prepare for retirement. From the implementation date, two-thirds of contributions will be directed into a retirement pot, accessible only via annuities at retirement, preventing lump-sum access upon employment termination.
Legislative context
Despite several delays in its implementation date, the National Treasury has confirmed the two-pot system will start on 1 September 2024. The relevant legislation, including the Revenue Laws Amendment Bill and the Pension Funds Amendment Bill, is advancing through legislative processes.
Preparation for the two-pot system’s introduction is underway, with a crucial focus on educating members. It’s vital for members to understand that although an initial 10% of current retirement savings will seed the savings pot, immediate withdrawals may not be possible if the amount is below the minimum R2 000 threshold. For instance, a member with R19 000 in retirement savings will see R1 900 moved to the savings pot, insufficient for withdrawal until the balance exceeds ZAR 2,000.
Comprehensive education about the two-pot system will be essential to ensure members fully understand its implementation, functionalities, and the implications of making withdrawals.
