The concept of gratuity or lump-sum retirement benefits has always been associated in South Africa with a cash payment or the unlocking of a portion of the total retirement benefits, such as, for example, the members in pension or provident funds, that an employee can claim at the time of leaving or retiring from the organization. A typical instance can be seen in the Government Employees Pension Fund case, where the workers with fewer than ten years of service get a gratuity that will be an initial cash payment equal to the goodwill’s share in the fund.The year 2025 will mark the start of a very significant transformation. The alterations will not only change the process of establishing the gratuity amount but also the way it is paid, and possibly even the question of whether it is a separate benefit at all, particularly under the new retirement/pension reform system. This transformation is a small part of a comprehensive restructuring of retirement savings, management of fund liabilities, and keeping the benefits from the government’s fiscal perspective sustainable.
Two-Pot System & Splitting of Retirement Fund
The Two-Pot Retirement System (which is expected to go live around October 2025) is a revolutionary step that comes along with the bifurcation of retirement savings into two sections, a “liquid” pot and a “preservation” pot (the latter being locked until retirement). This method of treating the retirement funds will mean that some of the amounts that were previously regarded as the part layered for withdrawal may now instead be subjected to preserving for the duration of employment. The new method may result in the amount of gratuity at the time of resignation being reduced especially for those employees who otherwise expect to get large amounts of money.
Who Qualifies / Loses Under the Revised Gratuity Regime?
- Long-Service Members vs Short-Service: According to GEPF policies, long-service staff may be the ones losing the most. Gratuity payments for long-service members have always been co-terminus with employment, but the revision of the regulations might reverse that.
- New Hires / Employees After Cut-off Dates: This will affect not only new employees but also those who are already in the pension/provident fund. They will all be rules of the new regime concerning limited or no gratuity or the change in withdrawal terms. The press hints that the newcomers (2026) will not have the same rights as those who have been the system since its inception.
- Those Taking Early Withdrawal or Resigning: The full benefits of the workers who leave or resign before their retirement may not be available due to the application of the more stringent rules. Rather, their rights will just be to the declared actuarial interest or preserved amounts and not the full withdrawal.
Public Sector Workers & Retirement Age Changes
On top of that, the public sector employees’ situation would be affected by the alteration of the mandatory retirement age from 60 to 65. The new ruling will consequently be in force from October 2025 that allows public sector antenatal care to retire at 65 instead of 60 years of age. This implies that the calculation of gratuities (which are normally determined based on the number of years served) has to be redone and thus the overall amount of gratuity payable to the employee at retirement in the future will be less than what was presumed under the previous regulations and the withdrawal policy may also have shifted by then.
Consequences, Threats and the Course of Action for Employees
Consequences
- Less money at retirement: A major share of the retirees opine that the total of their retirement benefits would be less than the figure they have calculated which may ultimately take them to the consideration of annuities or monthly pension withdrawals.
- More locking of a part: With the Two-Pot system, only a portion of one’s retirement savings may remain stuck until the legal retirement age.
- Equity and justice problems: Retired employees might complain more often about the discrepancies in the benefits situation, which has been particularly true since the Constitutional Court’s ruling in Mutsila.
Threats & Difficulties
- Unclear & transition tortuosity: The amounts that most of the employees will receive are pretty complex and it would be a very long process to explain that to everyone.
- Negative influence on job mobility: Losing one’s endowment could be a disincentive to employees who want to change their job or leave the public sector.
- Fund sustainability vs. individual loss: Cutting of individual benefits may result in discontent protests even if the reforms are justified by economic reasons.
This is What Employees Should Do
- Examine the fund documents and your case: Review the pension/provident fund rules and check if you are being treated under the old or new rules.
- Interact with HR/fund managers: Inquire about the effects of the new laws on you, particularly in the case your account would be transferred to the Two-Pot or preservation regime.
- Expect smaller lumps and plan your finances accordingly: It is advisable be conservative in your retirement planning meaning that you can adopt the idea of less cash taken at one time and more reliance on annuities or pensions.
- Legal recourse/challenge: In exceptional situations(e.g. with municipal funds), the heirs may depend on court decisions (like Mutsila) to demand equal treatment based on already-established rules.
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