The new proposed two-pot system intends to allow members of retirement schemes to access one-third of their savings before retirement. Picture: Independent Media.
The National Treasury has amended its original proposals on the two-pot retirement system, which would permit members of retirement schemes to access their pension funds before retirement, and proposed that it be implemented in 2025.
The new proposed two-pot system intends to allow members of retirement schemes the flexibility to access one-third of their savings before retirement while keeping the other two-thirds for retirement.
In the new system, members of schemes will have three “pots”: vested (built up before the legislation becomes effective), savings, and retirement.
Treasury now wants the system implemented on March 1, 2025, as opposed to the original implementation date of March 1, 2024, because of the magnitude of the reforms and the necessity to ensure that the new system operates seamlessly.
The final legislation has yet to be issued, and parliamentary approval is still required before there is certainty that the system will be implemented.
Webber Wentzel Partner Joon Chong and senior associate Nicolette van Vuuren said: “We believe that retirement fund administrators would welcome this move as there were many concerns that the initial date of March 1, 2024, would provide far too little time for the industry to have the necessary systems in place and to enable the required training of staff and members”.
Alexforbes' head of best practice Vickie Lange said the two-pot system is the latest milestone in the retirement reforms that have taken place over the last decade.
“This new system is exciting and will significantly enhance our retirement system. Alexforbes anticipates that the implementation of this system will improve retirement outcomes for members.
“The two-pot system will increase retirement savings over the longer term and will assist members in managing their more urgent financial needs. Based on certain assumptions, the two-pot system will improve members’ retirement outcomes by 2 to 2.5 times compared to the current system,” she said.
Treasury has also proposed increasing the amount that members can access when the two-pot system comes into effect from an initial R25 000 to R30 000. The seed capital is about 10% of a member’s retirement savings value on February 28, 2025, up to a maximum of R30 000.
“It is important to recognise that the higher limitation on seed capital may result in higher withdrawal amounts from retirement funds. This may result (on average) in an asset outflow impact of 1% to 2% and higher claims volumes for retirement funds. This will mainly be driven by financial distress and higher indebtedness amongst fund members of South African retirement funds.
“Should this transpire, it will significantly impact fund administrators as they will have to process large claim volumes in a limited time. Further, this will ultimately result in lower retirement incomes for members upon retirement,” Lange said.
PERSONAL FINANCE