On Sunday, 21 July 2024, President Cyril Ramaphosa signed the Pension Funds Amendment Bill into law, marking a significant milestone in South Africa’s retirement savings landscape. This new legislation is designed to enhance the structure and accessibility of retirement funds, ultimately promoting better savings habits among citizens.
Key Highlights of the Pension Funds Amendment Act
The Pension Funds Amendment Act introduces the two-pot retirement system, aiming to provide more flexibility and security for retirement savings. Here’s everything you need to know about the new law:
Amendments to Existing Legislation
The new Act amends several key pieces of pension-related legislation, including:
- Pension Funds Act of 1956
- Post and Telecommunications-Related Matters Act of 1958
- Transnet Pension Fund Act of 1990
- Government Employees Pension Law of 1996
These amendments enable the implementation of the two-pot system and other vital changes to improve retirement savings.
Savings Withdrawal Benefit
One of the critical components of the new law is the introduction of the savings withdrawal benefit. This allows pension fund members to access a portion of their retirement savings under specific conditions.
Two-Pot Retirement System
The two-pot retirement system, set to be implemented from 1 September 2024, divides retirement contributions into two distinct components:
- Savings Component: One-third of retirement contributions will go into this component. Members can withdraw funds from this pot at any time before retirement without needing to resign or cease employment. However, withdrawals are limited to one per year, with a minimum withdrawal amount of R2 000. Withdrawals will be added to the individual’s taxable income and taxed at their marginal tax rates.
- Retirement Component: Two-thirds of retirement contributions will be allocated to this component. These funds are preserved until retirement and can only be accessed according to the fund’s rules. Upon reaching retirement age, the funds in this component will be paid out as an annuity, including a living annuity.
Implementation and Compliance
Pension funds are required to amend their rules, adjust investment portfolios, and prepare administrative systems to facilitate member access to their savings from 1 September 2024. This preparation is crucial for ensuring a smooth transition to the new system.
Complementary Legislation
The new Pension Funds Amendment Act works in conjunction with the Revenue Laws Amendment Act, 2024 (Act No. 12 of 2024), which was signed by the President on 11 June 2024. Together, these laws aim to create a more flexible and efficient retirement savings framework.
Benefits of the Two-Pot System
The introduction of the two-pot system offers several benefits, including:
- Increased Flexibility: Members can access a portion of their savings without the need to resign or cash out their entire pension fund.
- Encouragement of Savings: By providing easy access to a portion of their savings, the system encourages individuals to save more consistently for their retirement.
- Tax Implications: While withdrawals from the savings component are taxable, the structured nature of the retirement component ensures that significant savings are preserved for retirement.
Conclusion
The Pension Funds Amendment Bill is a significant step forward in enhancing South Africa’s retirement savings framework. By introducing the two-pot system and other key changes, the new law provides greater flexibility, security, and encouragement for citizens to save for their future. As the implementation date of 1 September 2024 approaches, it’s essential for pension fund members to understand these changes and how they will impact their retirement savings.
For more information on how the new law affects you and your pension fund, consult with your retirement fund administrator or financial advisor.