The Two-Pot Retirement System is set to change how retirement savings are managed in South Africa. With the Revenue Laws Amendment Bill of 2023 and the Pension Laws Amendment Bill now enacted, this new system will be implemented on 1 September 2024. Here’s what you need to know about this significant shift in retirement planning.
1. What is the Two-Pot Retirement System?
The Two-Pot Retirement System is designed to split retirement savings into two distinct parts: a vested pot and a savings pot. This system introduces more flexibility by allowing limited access to a portion of your retirement savings before retirement, while ensuring that the bulk of your savings is preserved for retirement.
2. Vested Component: Protecting Your Existing Savings
All contributions and growth accumulated up to 31 August 2024 will be placed into the vested pot. This pot is protected under the old rules, meaning that your rights to these funds are preserved as they were before the new system comes into effect. You won’t be able to access these funds under the new withdrawal rules; they will only be available at retirement.
3. Savings Component: Limited Access to Your Savings
Starting from 1 September 2024, a portion of your retirement savings will be moved to a new savings pot, which you can access once during each tax year without needing to terminate your employment. This is intended to provide some liquidity while still encouraging long-term savings.
4. Retirement Component: Ensuring Future Security
The retirement pot is designed for compulsory preservation. This means that funds in this pot cannot be accessed until you retire. Upon retirement, if the total value of the retirement pot exceeds R165,000, it must be paid out as an annuity, providing you with a steady income during retirement.
5. Accessing Your Savings: When and How?
The first date you can access your savings pot is 1 September 2024. From this date, you can submit an application to withdraw funds from the savings pot. However, remember that processing this application will take some time, as the fund needs to verify details like your banking information and calculate the tax payable.
6. How Much Can You Withdraw?
On 1 September 2024, 10% of your retirement savings as of 31 August 2024 will be placed into your savings pot, up to a maximum of R30,000. This is known as seed capital and is a once-off withdrawal opportunity. After that, you can withdraw a minimum of R2,000 once each tax year, with the balance remaining in the savings pot.
7. Understanding the Tax Implications
Withdrawals from the savings pot will be taxed at your marginal tax rate. This means that the amount you withdraw will be added to your annual income, which could push you into a higher tax bracket. It’s important to consider this potential tax impact when deciding how much to withdraw.
8. Who is Affected by the Two-Pot System?
The Two-Pot Retirement System will apply to most members of retirement funds, but there is an exception. If you were 55 years or older on 1 March 2021, you have the choice to opt into the two-pot system. If you do not opt in, your retirement savings will continue under the old rules.
9. Making Withdrawals: The Process
If you’re registered for online access with your fund administrator (e.g., Sanlam), you can make automated withdrawals from your savings pot once the system is in place. However, ensure your tax affairs are in order, and that your personal details (ID number, tax number, contact details) are accurate to avoid delays in processing your withdrawal.
10. Why the Two-Pot System Matters
The introduction of the Two-Pot Retirement System marks a significant change in South Africa’s retirement landscape. It offers more flexibility for accessing retirement savings while ensuring that a substantial portion remains preserved for retirement. Understanding how this system works and its implications can help you make informed decisions about your financial future.
