In a momentous resurgence of change, the South African government has revamped its retirement and pension rules with far-reaching consequences—one of the biggest upswing involving gratuities (exclude service lump sum) payments. The new “Two-pot retirement system” which will come into force on the 10th of October 2025, will have retirement savings divided proportionately into two categories: one which can be accessed under some conditions prior to retirement, and the other is kept until the retirement age. Consequently, lots of employees may see their anticipated massive end-of-service payments being reduced or even wiped out completely under the new plan.
Who Is Going to Suffer the Most Loss in Gratuity?
There are specific groups of employees who would lose their gratuities more easily due to the new conditions:
- New employees after October 2025 might have to wait for the traditional lump sum payout.
- Those who withdraw early from their savings pot could lose their entire gratuity claim.
- Contract or casual workers, predominantly those not making consistent contributions or those shaded under provident funds, may be the losing end regarding gratuity benefits or may have their benefits reduced.
- Employees who transfer from pension funds to provident funds might have their benefits modified.
- Staff having less than ten years of service or those under “gratuity freeze” policies could also miss out on full benefits.
New government workers after 1996 or those with specific departmental rules, will have their eligibility linked directly to departmental regulations and fund structures.
Financial Impact: Smaller Lump Sum, More Regular Income
A monthly pension payment instead of the one-time payment at retirement may still be an option for some people the revised system has suggested. Drawing from the account early might cause taxes to be paid or reductions in the individual payout at the end. Retirement benefits might be lower in the form of a quick payment but the retirees may very well be relying on receiving monthly income regularly. The changeover may be a problem for some people who have always been able to take a big lump sum to pay off debts, invest, or buy things that are not so small.
A similar example from the text suggests that under the old rules, a worker might expect a lump sum of R 500,000 along with a pension, while under the new system their lump sum might be nothing, with larger monthly payments that may still be less over time.
What You Should Do If Your Gratuity Is Under Threat
In order to keep your retirement benefits safe under the new system:
- Read and understand your fund statements and clarify how your employer’s pension or provident fund is set up.
- Seek direction from an accredited financial advisor or pension professional.
- Withdrawals that are not essential should be avoided.
- Allow the money to stay in the account and get bigger until the time of retirement.
- Be informed about your rights: Departments like the National Treasury, GEPF, FSCA, and SARS have contact points for retirement and tax inquiries.
Also Read: SASSA R1,000 Cash Support 2025: Eligibility, Appeal Process & Payment Tracking Guide