Adjudicator’s rulings highlight ongoing confusion over two-pot withdrawals

More than a year after the implementation of the two-pot retirement system, the Office of the Pension Funds Adjudicator (OPFA) continues to receive complaints that reveal widespread misunderstandings about how the system works.

In two recent determinations, Deputy Adjudicator Naheem Essop (pictured) dismissed complaints involving requests for multiple withdrawals from the savings component, and early access to the vested component – finding in both cases that the funds had correctly applied their rules and relevant legislation.

In the first case, a member of the Lifestyle Retirement Annuity Fund sought to make a second withdrawal from his savings component after already accessing his seed capital. In the second, a member of the South African Retirement Annuity Fund argued that he should be allowed to withdraw from his vested component because of financial hardship. In both matters, Essop found that the funds had acted within the law, and the complainants misunderstood the two-pot system’s limitations.

Persistent confusion despite industry education

According to the OPFA, despite the retirement industry’s extensive education efforts ahead of the system’s rollout on 1 September 2024, many members still appear to misunderstand key rules.

“Many people are eager to access the savings pot,” the OPFA said, but the legislation allows only one withdrawal per tax year, subject to a minimum of R2 000, and only up to the balance available in the savings component. Withdrawals are taxed at the member’s marginal rate, and any outstanding tax debt may reduce the payment.

Essop noted that the two-pot system was designed to balance short-term financial relief with long-term retirement preservation, and allowing multiple withdrawals within a single tax year “would undermine this goal by depleting members’ savings”.

Understanding the three components

The system divides retirement contributions into three parts:

• Vested component: Contributions made before 1 September 2024, which remain subject to the pre-existing withdrawal rules.
• Savings component: Initially seeded with 10% of the member’s balance on 31 August 2024 (capped at R30 000) and thereafter funded by one-third of new contributions. Members may make one withdrawal per tax year, subject to the R2 000 minimum.
• Retirement component: Two-thirds of new contributions, which must be preserved until retirement.

Many complaints to the OPFA centre on misunderstanding these distinctions – particularly the belief that members can withdraw from their vested or retirement components, or make multiple savings component withdrawals a year.

Case 1: second savings-pot withdrawal refused

In the first complaint, the member purchased a retirement annuity from the Lifestyle Retirement Annuity Fund in 2006. His policy became paid-up in 2014 but remained active and invested. In September 2024, he withdrew R21 937.23 (after tax) from his savings component – the maximum available from his seeded amount.

When he later applied for another withdrawal, the fund informed him that because he was no longer making contributions, there were no new allocations to his savings component. The complainant disputed this, saying the fund’s refusal was irrational because he still had an overall fund credit of about R700 000, including R200 000 in savings.

The fund explained that his savings component had been reduced to zero after the initial withdrawal, and because no contributions were made after 1 September 2024, no further allocations were available for withdrawal.

In his determination, Essop said the fund’s rules required a once-off transfer of 10% (up to R30 000) from the vested to the savings component at implementation. As no further contributions had been made since then, the complainant had no balance available for another withdrawal.

“The complainant’s savings withdrawal benefit was paid in accordance with the fund’s rules, and there were no further benefits due to him,” he said.

The complaint was dismissed.

Case 2: withdrawal from vested pot denied

In the second case, a member of the South African Retirement Annuity Fund sought to withdraw from his component pot, arguing that his financial hardship justified early access. The complainant, whose policy became paid-up in 2008, had already withdrawn R4 205.70 from his savings component in October 2024.

He contended that the old and new rules allowed access to vested funds in cases of retrenchment or resignation, and his unemployment should qualify him.

The fund rejected the request, explaining that withdrawals from the vested component of a retirement annuity are only permitted:

• Once the member reaches age 55; or
• If the member is permanently disabled; or
• If the total fund value is less than R15 000; or
• Upon formal emigration with the necessary documentation.

The fund added that because the complainant’s policy value exceeded R15 000 and he was under 55, he did not qualify for early access.

Essop agreed, stating that the fund was “bound to comply with the Act and its rules”, and the complainant’s vested benefit could only be paid at retirement. He emphasised that ordering the fund to release the benefit early “would be unlawful”.

The complaint was dismissed.

Key takeaway for advisers

For financial advisers, these cases underscore the importance of educating clients about how the two-pot system operates – particularly the differences between the savings, vested, and retirement components, and the restrictions on withdrawals. Misunderstandings can lead to frustration among members and unnecessary complaints to the OPFA.

The determinations also reinforce that funds must strictly apply both their rules and national legislation, even when members face genuine financial hardship.

As the OPFA’s findings highlight, clear guidance and proactive communication from advisers can go a long way in helping members understand not just what they can access – but why the limits exist.