Two-Pot retirement system

South Africa’s retirement fund industry will be undergoing significant changes this year, with the latest being the implementation of the two-pot retirement system that will take place from 1 September 2024. Here’s what you need to know:?

What is the two-pot retirement system??

The two-pot retirement system is a reform that will allow retirement fund members to make partial withdrawals from their retirement funds before retirement, while preserving a portion that can only be accessed at retirement, to help improve retirement outcomes.?

Why implement a new system??

The two-pot system aims to preserve long-term retirement savings while allowing limited access to benefits for financial emergencies.??

Retirement funds will be put into three pots:?

Vested Pot?

This pot consists of the accumulated Retirement fund benefits before 1 September 2024 and will serve as your fund value, with no further contributions that can be made into the pot, apart from arrear contributions. This pot allocates 10%, up to a capped amount of R30 000, to the savings pot.?

Savings Pot?

A third of your retirement fund contributions will be allocated to the savings pot, where you will have access to the pot once every tax year, with a minimum withdrawal of R2000, less tax and admin fees. The savings pot will consist of 10%, up to a capped amount of R30 000 of your vested pot that will be transferred into the pot.?

Retirement Pot?

Two thirds of your retirement fund contributions will be allocated to your retirement pot, where no withdrawals can be made up until retirement as an annuity.?

What are the tax implications on withdrawals??

All withdrawals are taxable and subject to the marginal tax rate; therefore, we advise that you contact your financial adviser to ensure that you make the right decision. Please also keep in mind that if you have a debt with SARS, they will first deduct the outstanding funds owed to them.?

It is recommended that you seek the guidance of your financial adviser to help you navigate through the old and the new rules, taking tax and financial planning implications of accessing your retirement fund benefits, both pre- and post-retirement, as it will influence your benefits at retirement.?