By: Phil Le Feuvre THERE is already a lot of confusion about what the two-pot system is and how it will work. Fund members, remuneration practitioners, unions, and other stakeholders are all seeking answers ahead of its implementation on 1 September this year. Even fund administrators need information – albeit of a more technical nature – to ensure that they and their operations are ready in time.
In this article, we'll go over the basics and some not-so-basic concepts around the system, starting with why it's necessary in the first place. Covid and the 30 years before it South Africans, whether employees or independent earners, typically contribute part of their monthly salary to one or other retirement fund. When they change jobs or become unemployed, any accumulated savings in their fund are paid out to them after being taxed.
Unfortunately, the temptation to squander this money on luxuries or necessities is too great and it is seldom re-invested towards their inevitable retirement. This condition was exacerbated by Covid when many lost their jobs and used their payout to survive. Some, still employed but suddenly on lower pay, resigned just to get their hands on more cash.
Yet, this was not the first time the problem was recognised. A method for preserving retirement savings while affording members access to a reasonable portion for emergencies has been debated for the last 30 years or more. Finally, the two-pot system was developed to offer a rational compromise, although it is not without its challenges.
Introducing the pots Currently, members have existing savings in their retirement fund from past contributions, called the vested component. On September 1,..
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