Fund Credit Classifications

Fund Credits are being reclassified

From 1 March 2024, a member’s Fund Credit and their future contributions will be reclassified into a ‘vested pot’, ‘emergency savings pot’ and ‘retirement pot’.

You may recall the T-day tax legislation that came into effect on 1 March 2021 where a member’s Fund Credit was classified as ‘vested’ and ‘non-vested’ on our system. This means that the vested pot will have two sub-categories – the ‘T-day vested Fund Credit’ and the ‘T-day non-vested Fund Credit’.

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01/03/2021

Contributions paid from 01/03/2021 to a Provident Fund

TWO-POT LEGISLATION

01/03/2024

New Contributions paid from 01/03/2024,
excluding members ≥ 55 on 01//03/2021
who were members of the fund on 01/03/2021

The new Fund Credit classifications are important as they impact downstream processes, such as transfers between administrators (Section 14s and Recognition of Transfer Forms) and what members see on their benefit statements.

Members over age 55 can choose not to participate

Provident Fund members who were 55 or older on 1 March 2021 and who remained members of that fund until 1 March 2024 (referred to as members 55+) can choose to participate in the two-pot system or remain contributing according to the pre-T-day (01/03/2021) regime.

We are busy developing our Member Web to enable members 55+ to exercise this option. Please note that this functionality will only be available online.

Allocation of contributions from 1 March 2024

From 1 March 2024, contributions for participating members will be allocated as follows:

one third to the emergency savings pot
two thirds to the retirement pot

Contributions for members 55+ who elect not to participate in the two-pot system, will be allocated to the vested pot only.

Please note that February 2024 contributions paid to us by employers in March 2024 will be allocated as per the T-day regime. Similarly, arrear contributions for any period prior to 1 March 2024 will also be allocated as per the T-day regime, even if received after 1 March 2024.

The infographic below explains how contributions will be allocated for each member category:

Transfers into the emergency savings pot on 29 February 2024

The draft Bill proposes that 10% of a member’s vested pot on 29 February 2024, up to a maximum of R25 000, must be transferred (or seeded) into their emergency savings pot. This will ensure that a reasonable amount is available for a member’s first annual withdrawal from the emergency savings pot. After seeding, the emergency savings pot will grow with the 1/3rd allocation of Fund contributions plus investment returns.

The seeding transfer will be an automatic bulk process on 29 February 2024. Please note that the following members are excluded from this process.

Unclaimed members
Pensioners
Deferred pensioners, i.e. members who have already retired but who have not yet elected to receive their retirement benefit
Members with a pending claim status on 29 February 2024
Beneficiary fund members
Non-contributing members of terminating funds and funds in liquidation

Annual withdrawals from the emergency savings pot

Members who have a savings pot can make one withdrawal from this pot once every tax year (1 March to 28 February). The gross withdrawal amount must be R2 000 or more. The net amount withdrawn may be smaller than R2 000 once tax and the administration fee (payable by the member) have been deducted.
Withdrawals from the savings pot will be subject to employees’ tax (PAYE).

Annual withdrawals from the emergency pot is a new process and we are still grappling with the following challenges:

Should withdrawal requests be made via the Employer or can members submit them directly to the Administrator? If the member is allowed to submit a payment request directly to the Administrator, we have no doubt that less informed members will be exploited by scammers (as seen with unclaimed benefits previously) and that the risk of fraudulent claims will increase exponentially. We may be forced to implement a rule where we only pay withdrawals into the salary bank account of the member as provided
by the Employer.

Dealing with high withdrawal volumes in the months after 1 March 2024. We will automate the processing of withdrawals as far as possible to efficiently deal with the additional workload. This will mean that applications for cash withdrawals can only be made online via the Member App/portal and/or SC Broker (Employer) Portal for Employers. A further challenge is that we will be required to apply for a tax directive for each withdrawal.

To find out more about further developments regarding investment strategies, intra-Fund transfers and what your next steps are, read the latest “The Two-Pot Retirement System“ Newsletter.