NATIONAL NEWS - The two-pot retirement system will be implemented by all retirement funds in the country on 1 September. Despite the controversy regarding these new withdrawal regulations, implementation will go ahead.
The regulations are set out in the Pension Funds Amendment Bill and Revenue Laws Amendment Bill and have been signed off by the president.
The reason for these changes is to help members get through financial challenges. Some retirement fund members have unexpected expenses or emergencies that they aren't prepared for. Being able to withdraw some cash from their savings pot may help these members get through a financial challenge instead of needing to borrow money.
The pot system in a nutshell
All your retirement investments prior to the two-pot system start date, 1 September 2024, will form part of your vested component, and all the rules that currently apply to your retirement investments (including those relating to accessibility and tax) will continue to apply to this component.
If members older than 55 years on 1 September 2024 want to be part of the two-pot system, they will have to opt in, and they will not be able to reverse the decision later.
From 1 September, the system will divide members' contributions into two clear categories: two thirds will go towards mandatory retirement savings, while one third will be designated for a savings pot, offering the option of annual withdrawals to help with unforeseen financial challenges.
Money is only accessible from the age of 55 years. You will then have access to one third of the retirement annuity fund in a lump sum. The first R550 000 (lump sum) is tax free, but any withdrawal thereafter is taxed. The remaining two thirds of the fund is then invested into a living annuity to provide income, which is taxed according to tax tables.
Each time you access a savings withdrawal benefit, the amount available to provide you with an income in retirement will be reduced.
What to expect from 1 September
One third of your contributions will go into a savings component/pot.
- The savings component receives a once-off capital boost from your vested component (a minimum of 10% of your retirement fund value on 31 August 2024, up to the limit of R30 000). This is known as seed capital.
- The remaining two thirds of the new contributions will go into a retirement component/pot. This cannot be accessed until retirement.
- You can access your savings component once it reaches a minimum value of R2 000. (You may only make one annual withdrawal.)
- Annual withdrawals will be taxed at marginal tax rates.
- Remaining amounts in the savings component/pot grow tax-free, until a withdrawal is made.
- There is no maximum withdrawal limit.
Important tip:
Rather prepare for emergencies and unexpected expenses by saving for them separately, instead of using your retirement savings. Having savings in another account can help you face financial challenges and keep all your retirement savings for your future.
Sources: www.alexforbes; www.allangrey; www.georgeherald
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