BUSINESS NEWS - The two-pot retirement system recently passed the one-year mark since its implementation on 1 September 2024 – but there is still a lack of understanding of the rules.

Many people are eager to access the savings pot, but current rules limit withdrawals to a minimum of R2000 once per tax year, up to the maximum of what is contained in the savings pot, and not more. Withdrawals are taxed at your marginal income tax rate, and if you owe money to SARS, your withdrawal may be reduced to offset that debt.

Despite a substantial education drive by the retirement funds industry around its implementation, some misunderstandings persist and have led to complaints lodged with the Office of the Pension Funds Adjudicator (OPFA).

Naheem Essop, the Deputy Pension Funds Adjudicator, recently dismissed two similar complaints when he found that in refusing multiple withdrawals from the savings pot, or a withdrawal from the vested pot, the funds were following their own rules as well as national legislation.

The two-pot retirement system, implemented on 1 September 2024, allows members to access a portion of their retirement savings before retirement without resigning from their jobs. This system splits contributions into three components:

Vested pot: Contributions made before 1 September 2024, which remain subject to old rules.

Savings pot: This is constituted of your seeding capital plus one-third of new contributions (post-implementation). Withdrawals from the savings pot can take place before retirement or resignation subject to a minimum amount of R2 000. There is no upper limit on the amount that may be withdrawn from the savings pot, and the amount in the savings pot can be accumulated over time, however, only one withdrawal per tax year is permissible.

Retirement pot: Two-thirds of new contributions, preserved until retirement.

While there is increasing public interest in allowing multiple withdrawals from the savings pot within a single tax year, driven by ongoing financial hardship and the desire for greater liquidity in times of need, the OPFA assesses complaints about the withdrawal limits within the legislation.

The National Treasury has emphasised that the two-pot system is designed to balance short-term relief with long-term retirement security. Allowing multiple withdrawals could undermine this goal by depleting retirement savings, much to the detriment of members.

Savings-pot complaint

A complaint that came before the OPFA recently related to the rule that the savings pot was initially funded by seeding capital in the first financial year and thereafter with one-third of the contributions made after 1 September 2024.

The seeding capital is 10% of your retirement savings as at 31 August 2024, capped at R30 000. This amount is transferred from your vested pot to your savings pot to give you an initial balance that can be accessed before retirement. 

Once this amount has been accessed, the savings pot can only be funded by a third of the contributions made after 1 September 2024. In the absence of contributions made after the implementation date, there is no further benefit that can be accessed.

The complainant purchased a retirement annuity from Lifestyle Retirement Annuity Fund on 5 October 2006 with a retirement date of 5 October 2038. He was paid his savings component benefit of R21 937.23 (after tax) on 13 September 2024. 

He was unhappy that the fund was denying him a second withdrawal since his policy was paid-up. He submitted that his desired outcome was for the fund to allow him to access his ‘annual withdrawal’.

He stated that when he asked the fund about his withdrawal this year, he was informed that since he was no longer making contributions, he could not make a future withdrawal. He submitted that the total of his fund credit amounted to R700 000, with savings of R200 000. 

He stated that he had only made a withdrawal of R30 000 from his benefit. He said the fund’s submission that he exceeded his withdrawal limit was irrational.

In response the fund stated that the complainant’s premium payments were discontinued on 1 November 2014, and the policy's status changed to paid-up on 23 October 2014. The policy remained active; however, no premium was received under it. The complainant's funds remained invested and continued to grow in accordance with the selected portfolios.

The fund stated that in September 2024, the complainant applied for a maximum savings withdrawal. He was paid a savings component benefit of R21 937.23, and R7 707.44 was deducted for tax purposes. The complainant’s savings component was reduced to zero. As no premiums were received after 1 September 2024, no further allocations were applied to the complainant’s savings component, and therefore, there was no accrual to this component.

The fund submitted that while members are allowed one withdrawal annually, the complainant’s savings portion currently has no benefit, so no withdrawal could be processed.

In his determination, Essop said the rules of the fund provide that from 1 September 2024, the fund had to allocate to the savings component a once-off amount of 10%, limited to R30 000 of the member’s interest in the vested component. 

Since no further contributions were made by the complainant after 1 September 2024, no further allocation could be made to the savings component.

Based on the submissions above, the complainant was only entitled to what was in his savings pot i.e. the seeding capital which had already been withdrawn in the previous tax year. Since no further contributions were received by the fund, there was no amount available for withdrawal in the second tax year despite the fact that the complainant still had credits in his vested and retirement pots.

Essop said he was satisfied that the complainant’s savings withdrawal benefit was paid in accordance with the fund's rules and that there were no further benefits due to him. Thus, the complaint was dismissed.

Vested-pot complaint

Another complainant said the South African Retirement Annuity Fund refused to pay him the vested component in terms of the two-pot retirement system.

A retirement annuity policy was issued as an Investment Horizon Retirement Plan to the fund for the benefit of the complainant on 1 November 2002. The policy was made paid-up since 25 February 2008. The complainant was paid a withdrawal benefit from his savings component of R4 205.70 on 12 October 2024.

The complainant was aggrieved by the fund’s refusal to pay his fund credit allocated to his vested component after the two-pot retirement system was implemented.

He submitted that both the old and new rules permit a member to access their vested component when the member suffers financial hardship linked to retrenchment, resignation or dismissal. He said he lost his job some years ago and has not been employed ever since. He submitted that he withdrew his savings component and only has R42 000 in his vested component. He submitted that he has nil balance in his retirement and savings component.

The fund submitted that the complainant is only permitted to claim his full retirement benefit if he is 55 years old or older. It submitted that the complainant will only be able to claim his retirement benefit prior to the age of 55 if he is permanently disabled and submits a valid disability claim; the combined value of his retirement and vested component is less than R15 000, or he formally emigrated from South Africa and provided the fund with the necessary documentation. The fund submitted that the complainant is not 55 years old and the current value of the policy exceeds R15 000.

The fund said the complainant’s policy was paid up prior to the implementation of the two-pot system. It submitted that the full value was subsequently allocated to the vested component and savings component, in line with the system’s transition. It submitted that the complainant has previously accessed the seeded portion allocated to the savings component. The complainant was paid a savings component withdrawal benefit of R4 205.70 on 12 October 2024.

After 1 September 2024, the complainant was only entitled to his savings component upon his request. He would only be entitled to his retirement component upon reaching retirement age. The complainant would only be entitled to his vested component in a retirement annuity when he reached retirement age. The submissions indicated that the complainant was paid a savings component withdrawal benefit of R4 205.70 on 12 October 2024.

Thus, the complainant was paid the benefit that he was entitled to and he is not entitled to claim his vested component at this stage.

Essop said in his determination that the fund was bound to comply with the Act and its rules to pay the complainant his vested component and which is only payable upon the complainant reaching the normal retirement age. In respect of the vested component, the rules that were previously applicable to withdrawals remain. And since there were always limitations placed on withdrawals from retirement annuities, the complainant was not entitled to an early withdrawal from his vested pot.

He could not order the fund to pay out the complainant’s full retirement benefit as this would be unlawful. Thus, this complaint was also dismissed.

Naheem Essop: Deputy Pension Funds Adjudicator.

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