Ramaphosa signs new ‘two-pot’ law that overhauls retirement system

A new law overhauling SA’s retirement regime has been signed by President Cyril Ramaphosa. The bill, known as Revenue Laws Amendment Bill, establishes what is known as the “two-pot” system that gives access to retirement savings without retirement fund members having to resign or cash out the entire pension funds.

The new legislation, signed into law on Saturday, was created to help those who are in financial distress access a portion of their retirement contributions, the presidency said in a statement, while preserving the bulk for retirement. This was necessary to help workers caught in a cost-of-living crisis.

“While we are continuing the task of growing our economy to create more opportunities for all South Africans and reduce the financial vulnerability affecting many individuals and households, the new retirement system offers protection and dignity to those who need it the most to overcome financial stress,” Ramaphosa said after signing the bill.

The new system will split contributions made after September 1 into a savings and retirement component. Historical retirement benefits will become a vested component.

To limit adverse effects on liquidity, workers will be able to withdraw the lesser of 10% or R30,000 of the vested component on implementation, after which one-third of contributions will go into the savings component and two-thirds into the retirement component.

A member will be able to make single annual withdrawal from the savings component, with a minimum withdrawal amount of R2,000, within a single year of assessment.

“Individuals will have access to amounts in the savings component before retirement for times of financial distress, while the amounts in the retirement component are preserved until retirement,” the presidency said.

During parliamentary debates earlier this year, deputy finance minister David Masondo said the government was very concerned about the low level of savings in SA, which he said were important for economic growth.

The new retirement regime, the presidency said ensures “the retirement system remains responsive to diverse financial needs”. The new two-pot system supports “both long-term financial security and immediate assistance during emergencies”.

The presidency cited citizens’ struggles during Covid-19 as an example of this, where many workers were unable to pay for basics despite having money in their retirement funds.

“Traditional retirement systems that primarily focus on long term savings, often lack the adaptability to address immediate financial crises,” the presidency said.

The new system will ideally “strike a balance between long-term security and immediate needs, recognising life’s unpredictability”.

The bill underwent extensive public participation with the standing committee on finance receiving 287 submissions. The retirement industry supported it, though it objected to the earlier implementation date proposed by the committee.

However, the early passage of the bill through parliament was critical to give fund administrators certainty about the legal framework for the new system as they will have to change fund rules to accommodate it.

Also necessary for the implementation of the system are amendments to the Pensions Funds Act to align it with the new regime and allow fund administrators to change fund rules.

Some of the more of the critical sections of the new law only come into operation in March 2025 which allows funds and stakeholders to begin making the necessary adjustments.

moosat@businesslive.co.za