The two-pot system is a change to the current laws of retirement funds which will allow members of retirement funds to access a 1/3rd of their future contributions once per year without having to leave employment. The other 2/3rds of a member’s future contributions will not be accessible to the member until the member retires (at any time after age 55).

The following types of Funds are affected:
• Pension funds (standalone funds and umbrella funds);
• Provident funds (standalone funds and umbrella funds);
• Retirement Annuity funds (except some legacy funds that will be exempted);
• Preservation Pension Funds; and
• Preservation Provident Funds.

All individuals who are currently:
• contributing to a retirement fund (pension or provident); and/or
• Contributing to a retirement annuity fund; and/or
• Have an existing Preservation Fund (pension or provident).

And all individuals who join a pension Fund in the future.

Investment returns will be allocated to each of the components according to the portfolio that the contributions are invested in.

The system is applicable to everyone with two exceptions:

Members of provident funds who

• were over age 55 at 1 March 2021
• are still in the same provident fund at the date of implementation of the two-pot system as they were at 1 March 2021
• have not elected to opt-into the two-pot system

Members of some legacy retirement funds that are exempt from the two-pot system.

If a member dies after the implementation date, their full benefit from all the components in the fund is payable to their beneficiaries. The distribution of the benefit will be made in accordance with Section 37C of the Pension Funds Act.

The vested component is the total of all your retirement savings in the retirement fund at the date that the two-pot system is implemented.

The savings component is a new component that will come into existence when the two-pot system is implemented. This component will be made up of 1/3rd of all contributions paid to the fund after the implementation date of the two-pot system.

The retirement component is a new component that will come into existence when the two-pot system is implemented. This component will be made up of 2/3rds of all contributions paid to the fund after the implementation date of the two-pot system.

At present, the date for the implementation of the two-pot system has been set at 1 September 2024. However, this date could be subject to change.

There are three components:

The savings component
The savings component is a new component that will come into existence when the two-pot system is implemented. This component will be made up of 1/3rd of all contributions paid to the fund after the implementation date of the two-pot system.

The vested component
The vested component is the total of all your retirement savings in the retirement fund at the date that the two-pot system is implemented.

The retirement component
The retirement component is a new component that will come into existence when the two-pot system is implemented. This component will be made up of 2/3rds of all contributions paid to the fund after the implementation date of the two-pot system.

To provide members with some immediate access to a portion of the retirement savings at the implementation date, the legislation is allowing for 10% of the vested component (subject to a maximum of R30 000) to be transferred to the saving component to give the savings component an initial starting balance.

This initial starting balance is called the seed funding or seed capital.

On the death of a member, the beneficiaries are not affected as the total value of all the components in the fund are payable to the beneficiaries.

The benefits will be distributed to the beneficiaries in accordance with Section 37C of the Pension Funds Act.

It is important to understand what your benefits are and how they will be available to you over your lifetime.

Members must be sure to understand the impact of withdrawing their savings component during their working lifetime. They should consult with a financial advisor to understand how any withdrawal/s impact their level of future savings and ultimately their ability to retire with sufficient funds.

A retirement fund must adequately communicate how the system works and how member’s future benefits will be impacted by the changes made to the retirement fund when the two-pot system is implemented.

The savings component will be the only component that will be allowed to be accessed without the member having to resign from their employer.

After the implementation date of the two-pot system, the savings component can be accessed once per tax year (between 1 March of a year and 28 February of the following year). There must be a minimum balance of R2 000 in order to make a withdrawal from the savings component.

Tax comes into play at different points within retirement funds.

Contributions
There is no change in the tax treatment of contributions with the implementation of the two-pot system.

Savings component withdrawals
Any withdrawal (pre-retirement) from the savings component will be treated by SARS as income (similar to your salary or other income an individual might receive) and will added to your income for the year and taxed at an individual’s marginal income tax rate. This means that taking a withdrawal from your savings component could push you into a new tax bracket and increase the level of tax paid in a year.

Tax on other benefits
On all other benefits paid from a retirement fund, the tax treatment of benefits does not change with the implementation of the two-pot system.

Contributions will automatically be split between the savings component and the retirement component from the implementation date.

Certain transfers are allowed between some of the components. The following is allowed:

• Transfer from the savings component to the retirement component; or
• Transfer from the vested component to the retirement component