FAQS

Effective from 1 September 2024, your retirement savings will be split into a ‘Savings Pot’ for and a ‘Retirement Pot’. This is a departure from the traditional model, which typically involves a single retirement savings pot. Benefits based on one-third of your pensionable service from 1 September 2024 will be allocated to the Savings Pot with the remainder (two-thirds) being allocated to the Retirement Pot.

The Savings Pot is designed for flexibility and will be accessible to members without the need for them to exit the Fund. This component aims to provide a safety net for unforeseen financial needs, reducing the temptation to withdraw the entire retirement savings when changing jobs or encountering financial difficulties.The Retirement Pot is less flexible and is only accessible on death or retirement. This pot is meant to protect your long-term retirement savings.

Importantly, any retirement savings benefits accrued up to 31st August 2024 will form a separate “Vested Pot” and will not be subject to the new two-pot rules. This protects your accrued benefits from the legislation changes.

In summary, the two-pot system gives members access to some of their savings for urgent needs, whilst protecting the steady and reliable income after retirement. It’s an approach that carefully balances the need for long-term retirement security with the ability to meet immediate financial challenges.

A small portion of your retirement savings made prior to 1 September 2024 will be moved into this new Savings Pot. This amount is capped at the lower of 10% of your vested retirement savings as of 1 September 2024 and R30,000. This seed capital will be immediately accessible to members from 1 September 2024 and is a once-off, non-taxable transfer.

Example 1:

Suppose a member’s total accrued benefits accrued as at 1 September 2024 is R500 000. The seed capital for this member will be determined as the lesser of 10% of R500 000 (R50 000) and R30 000. Therefore, the member’s seed capital in this case is R30 000 as at 1 September 2024.

Example 2:

Suppose a member’s total accrued benefits as at 1 September 2024 is R100 000. The seed capital for this member will be determined as the lesser of 10% of R100 000 (R10 000) and R30 000. Therefore, the member’s seed capital in this case is R10 000 as at 1 September 2024.

Yes, you are correct. With the implementation of the Two Pot system, there will indeed be three distinct service periods to keep track of. Currently, the Fund maintains a single service record, as all benefit entitlements are based on this record. However, starting from 1 September 2024, these service periods will be differentiated, each associated with specific benefits related to the different pots.

Existing members will have a Vested Service record, which will be determined by the pensionable service accumulated from the date they joined the Fund up to
31 August 2024. Additionally, members will have a Savings Service period, based on one-third of their pensionable service from 1 September 2024, and a Retirement Service period, based on two-thirds of their pensionable service from the same date.

For example, let’s consider a member with 10 years of pensionable service post-seeding as of 31 August 2024. If this member accesses the seeded amount on the first day, they will have 10 years of Vested Service and zero years of Savings Service and Retirement Service as of 1 September 2024. However, one year later, the same member will have 10 years of Vested Service, 4 months of Savings Service, and 8 months of Retirement Service.

On the other hand, a member who joins the GEPF on 1 September 2024 will have no Vested Service but will accumulate 4 months of Savings Service and 8 months of Retirement Service after one year. It’s important to note that only members who were part of the GEPF before 1 September 2024 will have a Vested Service period, as demonstrated in the examples above.

The GEPF operates as a defined benefit Fund, which means that your benefits are determined based on several factors: your pensionable service, final salary, and actuarial factors. It’s important to note that the benefit you earn is not fixed and can change as any of these aspects change over time.

The benefits you accrue up to 31st August 2024 will be allocated to the Vested Pot. Your pensionable service until this date will be fixed and remain constant, but the final salary and actuarial factors will vary with time. To illustrate this, consider the following example:

Imagine a 40-year-old member with 10 years of Vested Service on 1st September 2024, having a final salary of R300,000. In this case, the Vested Pot will reflect a balance of R610,800 (=10 * 300,000 * 0.2036). Now, let’s suppose that after one year, when the member is 41 years old, their final salary increases to R315,000. Although their Vested Service remains at 10 years, the actuarial factor for a 41-year-old is different from that of a 40-year-old. As a result, on 1st September 2025, the Vested Pot will reflect a balance of R643,576.50 (=10 * 315,000 * 0.20431). Thus, despite having the same Vested Service, the Vested Pot will show a different balance due to changes in final salary and actuarial factors.

It’s important to emphasise that your benefits are fundamentally derived from your service, and what remains fixed is your pensionable service until 31st August 2024. The dynamic nature of your final salary and actuarial factors will continue to influence the actual balance reflected in the Vested Pot over time.

Claims suggesting that the GEPF is short-changing its members by not having a fixed Vested Pot balance are not accurate. The GEPF is committed to providing fair and transparent benefits to its members, and the allocation of the Vested Pot is based on specific factors that inherently make it non-fixed. The Vested Pot’s balance is influenced not only by the fixed Vested Service period but also by the final salary and age-dependent actuarial factors, which fluctuate over time.

It’s important to note that the claim that Vested Pots in defined contribution funds are fixed is also incorrect. In a defined contribution fund, what gets allocated to the Vested Pot is the sum of all contributions plus the interest earned up to
31 August 2024. However, the value of this pot can change over time as further investment returns are added or, in the case of negative returns, may even decrease.

To grasp the distinction, it’s essential to understand that in a defined benefit fund like the GEPF, what is vested is the pensionable service period up to 31 August 2024. In contrast, for a defined contribution fund, what vests is a lump sum based on all contributions and investment returns earned up to the same date. In both types of funds, the Vested Pot’s balance is not fixed and will vary with time due to the dynamic nature of the contributing factors.

Subtracting The practice of subtracting from your eventual benefit, which might work well for defined contribution funds, is not applicable in a defined benefit fund like the GEPF.

In a defined contribution fund, your benefit entitlements are typically expressed in terms of what is payable in current times. However, in the GEPF, your benefit entitlements depend on factors such as your pensionable service and salary and are expressed as a benefit payable in the future. Simply subtracting the withdrawn amount from your eventual benefit would not accurately account for the time value of money. To ensure fairness and transparency, interest would need to be applied to the withdrawn amount to account for this time value. This adjusted amount would then be subtracted from your eventual benefit.

Implementing such a method would introduce administrative complexity and create a debt on the member’s account. Moreover, it would effectively introduce a defined contribution underpin to the Fund, which is not its intended structure. This approach would increase administration costs, potentially reducing overall benefits for all members.

Given that the GEPF’s benefit calculations are based on service, salary, and actuarial factors – with the latter two being harder to adjust – it is more practical and equitable to communicate the reduction in pensionable service. This approach ensures simplicity for members to understand while maintaining the integrity of the Fund’s defined benefit structure

This assertion that reducing your pensionable service for partial withdrawals penalises you by more than the amount withdrawn is not entirely accurate, as it overlooks the concept of the time value of money.

It’s true that the cost of replacing the service period at a later stage may be higher if your final salary has increased. This is because your benefit entitlement at any given time is influenced by your final salary. If your final salary is higher, each month of service contributes to a higher benefit than before. Therefore, replacing the exact period of service previously lost may indeed require a larger sum than the amount withdrawn. Conversely, if you aim to replace the exact amount withdrawn, it may result in acquiring a shorter period of service, provided your final salary has increased since the withdrawal was made.

This concept extends to defined contribution funds as well. When you make a partial withdrawal from the Savings Pot, you not only withdraw the principal amount but also forfeit the investment returns that would have been earned on those withdrawn funds. To truly cover for the amount taken out, you would need to replace not just the withdrawn amount but also add back the equivalent interest that the fund would have earned over the same period. This comprehensive approach ensures that you cover the true cost of the withdrawal.

In summary, the reduction in pensionable service is not a form of penalty but rather a reflection of the time value of money and the changing dynamics of your benefit entitlements over time.

Yes, members will still be able to purchase service periods. Based on the latest guidance from policymakers, any purchased service period will be split between the Savings Component and the Retirement Component in a 1/3 to 2/3 ratio. Specifically, 1/3 of the purchased service period will be allocated to the Savings Service, and the remaining 2/3 will be allocated to the Retirement Service. This means that you will not be able to purchase service and solely allocate it to the Savings Pot as previously thought.

A small proportion of a member’s retirement savings made prior to 1 September 2024 will be moved to the new savings pot. This proportional amount is capped as the lower of 10% of a member’s vested retirement savings as of 1 September 2024 and R30 000. This is referred to as the “seed capital” and will be immediately accessible to members as from 1 September 2024.

If a member opts to make a withdrawal from the Savings Pot on this date, the maximum amount they can withdraw is the seed capital (provided it is at least R2,000).However, if a member chooses not to withdraw the full amount on September 1 and decides to make a partial withdrawal at a later date, they will have the flexibility to withdraw any amount up to the total balance allocated to the Savings Pot.

It’s essential to emphasize that members are under no obligation to access these funds allocated to the Savings Pot. The GEPF strongly encourages members to keep their money invested and consider cashing in at the time of retirement for potentially more favorable retirement outcomes. Preserving your retirement savings will lead to better long-term financial security.

Transfers between the different pots within the Two Pot system are not considered taxable transactions since no money actually leaves the Fund during these transfers. However, when it comes to partial withdrawals from the Savings Pot, it’s important to note that these withdrawals are treated as additional income for the member, and they are subject to taxation at the member’s marginal tax rate.

For a clearer understanding, let’s illustrate with an example: Suppose your annual income is R300,000, and your marginal income tax rate is 26%. If you decide to withdraw R10,000 from your savings component, R2,600 will be deducted from this amount and remitted to the SARS. Consequently, you will receive a net amount of R7,400 in your bank account after taxation.

For other types of exits, such as resignations or retirements, the amounts withdrawn will be subject to taxation based on the normal retirement tax table rates in accordance with the prevailing tax regulations.

To appreciate the tax treatment, you need to understand how your retirement savings are taxed. Contributions you make to the GEPF are not considered taxable income at the time of payment/deduction from your salary. Upon retirement, your pension income is taxed at PAYE rates, like how your salary was taxed during your working years. Given that most people’s retirement income is lower than their employment income, the tax rate on pensions is generally lower. Furthermore, senior citizens receive additional tax rebates, further reducing their tax burden. This setup provides a dual benefit: you enjoy a tax break on your contributions now when in employment and are likely to pay less tax on your pension due to lower income and available rebates in retirement.

The two-pot system introduces a provision for early withdrawals from your Savings Pot, which are treated as receiving part of your pension ahead of schedule. Such withdrawals are taxed at your current rate, aligning with the taxation of your salary, because you are still within an income-earning phase. This approach ensures consistency across all forms of income, whether from work or early pension access, applying your existing tax bracket to these additional amounts.

Examining this closely reveals the fairness embedded in the tax system. It maintains uniformity in income treatment, ensuring that any extra income, including early pension withdrawals, is taxed according to your current tax situation. Choosing to access your pension early subjects you to taxation based on your possibly higher current income, whereas waiting until retirement could result in being taxed at a lower rate due to reduced income.

It’s important to remember the tax-free lump sum benefit of up to R550,000 available upon exiting the Fund, remains intact and applicable to your pension savings. This tax exemption is designed to support you upon retirement or exit from the Fund, ensuring that the tax system’s approach to early withdrawals does not disadvantage members. Ultimately, members are taxed on the same principles that would apply at retirement, maintaining a balanced and equitable tax framework.

Previously, it was understood that you would be paid from all three pots (Vested, Savings, and Retirement) upon retrenchment. However, the policymakers have clarified that retrenchments will be treated the same as resignations. This means that you will only be paid the balance in the Vested and Savings Pots as a cash benefit. The balance in the Retirement Pot must be preserved within the Fund or transferred to another approved fund, with the restriction that you will only be able to access these amounts once you have retired.

Upon resignation, a member will become entitled to receive the combined balance of their Vested and Savings Pots as a lump sum payment on the exit date. It’s important to note that this lump sum payment will be subject to taxation. Alternatively, members have the option to transfer the payable lump sum to an approved retirement savings vehicle. If a member chooses to transfer the funds to such a vehicle, this transfer will not be subject to taxation.

The Retirement Pot, however, will need to be preserved and will only become accessible when a member reaches retirement age or in the event of their earlier death. Members will have the flexibility to decide whether they wish to keep the Retirement Pot within the Fund or transfer it to an approved retirement savings vehicle. If the Retirement Pot remains within the Fund, it will be retained as a service credit for a deferred pension. The deferred pensions will be  calculated based on the final salary  and pensionable salary at the date of resignation. The deferred pension will be increased with pension increases each year. Members will only receive the pension from the Retirement Pot, once they have retired.  

In the event that pension benefits are included as part of a divorce settlement, the pension benefits will be adjusted as specified in the divorce decree. These adjustments will result in proportional reductions in the balances of the different pots within the Two Pot system. Specifically, Vested, Savings, and Retirement Services will all be uniformly reduced in accordance with the specified proportions outlined in the divorce decree. Ex-spouses will be entitled to a portion of all three pots and will have two options available to them. They can choose to receive their share of all three pots as a lump sum payment or opt to have it transferred to their respective retirement funds. This decision will be at the discretion of the ex-spouse. The policymakers have clarified that an ex-spouse is entitled to the balances in all three pots as a cash benefit. This means that the previous understanding, which stated the Retirement Pot would not be available as a lump sum payment, is incorrect. Instead, the ex-spouse can choose to receive their portion of the Retirement Pot as a lump sum as well.

For the ex-spouse who is entitled to a portion of the Vested and Savings Pots, they will have two options available to them. They can choose to receive their share of the Vested and Savings Pots as a lump sum payment or opt to have it transferred to their respective retirement funds. This decision will be at the discretion of the ex-spouse.

However, it’s important to note that the Retirement Pot will not be available as a lump sum payment. Instead, it will be transferred to the ex-spouse’s Retirement Pot within their respective retirement fund.

Upon retirement, a member will receive a combination of gratuity lump sums and a pension, similar to the existing retirement benefits. The lump sum payments are calculated as follows:

• from the Vested Pot: 6.72% of the final salary multiplied by the Vested Service.
• from the Savings Pot: 6.72% of the final salary multiplied by the Savings Service.

In addition to the lump sums, the member will also receive a monthly pension, calculated as follows:

• a monthly pension from the Vested Pot: (1/55) times the final salary times the Vested Service, plus R360 per year.
• a monthly pension from the Retirement Pot: (1/55) times the final salary times the Retirement Service.

It’s important to note that the lump sum payments will be subject to taxation in accordance with the retirement tax tables, while the pension payments will be taxed based on the applicable marginal tax rates.

Members are not obliged to make partial withdrawals from the Savings Pot. Any amount that is not withdrawn stays in the Pot and no service reduction is applied. On eventual exit a member will thus be paid on their full total pensionable service.

All active members will be under the new system irrespective of age.

In the event that a member chooses to emigrate, they will have the option to access the balances in both the Vested Pot and the Savings Pot on the date of their emigration. However, it’s important to note that the Retirement Pot within the Fund will not be accessible for a period of three years following emigration.

The benefit structure for the payment of benefits upon retirement is determined based on the total pensionable service, without taking into account any service reductions resulting from partial withdrawals. However, the actual calculation of the benefit amounts considers the impact of service reductions due to partial withdrawals.

Therefore, if a member has been a part of the GEPF for 10 years or more but, as a result of partial withdrawals, ends up with less than 10 years of pensionable service, they will still be eligible for the standard benefit structure. This means that upon retirement, they will receive both a lump sum benefit and a regular pension, consistent with the GEPF’s standard retirement benefit structure. The calculation of these benefits will reflect the reduced pensionable service resulting from the partial withdrawals.

The implementation of the two-pot system will not have a detrimental impact on the financial security of the Fund. When a partial withdrawal is made by a member, it corresponds to a reduction in the Fund’s obligation to that member. Consequently, the decrease in assets due to these withdrawals will be offset by a corresponding decrease in the overall liability of the Fund. This means that the financial position of the Fund remains relatively stable despite partial withdrawals.

Moreover, the Fund is well-prepared to cover the anticipated partial withdrawal benefits, as it maintains sufficient liquid assets to meet these obligations. The GEPF is committed to ensuring the financial security of its members and will continue to manage its resources effectively to meet its obligations.

Regarding the claim that there will be no growth in pension benefits between the ages of 60 and 65, this is not accurate. Your pension benefits will continue to grow as long as your service periods and salaries increase, irrespective of your age. Retiring at the age of 60 is a personal choice, but it does not imply that your pension benefits will remain stagnant during the five-year period until age 65. Your pension benefits are designed to reflect your service and salary progression throughout your working years

Members are encouraged to approach their retirement savings with a preservation mindset, considering the long-term impact of their decisions. By diversifying financial planning and maintaining retirement savings, individuals can ensure a stable and comfortable retirement while safeguarding their financial future. The GEPF is committed to providing clear information and a seamless experience for members, and further details on partial withdrawal procedures will be communicated as they are finalised.