Government announces implementation of new retirement reforms

21 Feb 2024 (South africa government news agency) New retirement reforms that will allow access to a portion of one’s retirement savings before retirement will be effective from 1 September 2024, says Finance Minister Enoch Godongwana.

‘Progress has been made on the two-pot retirement system since I last addressed you during the Medium Term Budget Policy Statement (MTBPS). Contributions to retirement funds will be split, with one-third going into a ‘savings component’ and two-thirds going into a ‘retirement component.’

‘The two-pot system ensures that we strike a balance between preserving contributions to safeguard a better retirement for members, while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress,’ the Minister said on Wednesday in Parliament.

Delivering the 2024 National Budget Speech, the last Budget Speech of the sixth administration, Godongwana said the first cash withdrawals could be made from the savings pot as of 1 September 2024.

According to the 2024 National Treasury Budget Review, contributions remain tax deductible and tax free while growing in the fund.

‘Retirement fund members will be able to withdraw amounts from the savings component before retirement, while the retirement component will remain protected. Savings accumulated up to the date of implementation will not be affected, except for the initial seed capital amount.

‘This amount will be the lower of 10 % of the fund value on 31 August 2024 or R30 000, and will be transferred from accumulated retirement savings to the savings component to assist fund members who may prefer an immediate withdrawal due to a financial emergency. This seeding will be a once-off event. If not used, it will still be available in the future,’ the document said.

Pre-retirement withdrawals from the savings component will be taxed at marginal rates, like all other income. However, when taxable income is lower, taxpayers will be taxed at lower rates.

‘Only one withdrawal may take place in a tax year, and the minimum withdrawal amount is R2 000. The optimal option is still to preserve retirement savings as long as possible, as the amounts grow at compound rates and can attract lower tax rates.

‘Amounts left in the savings component on retirement can be withdrawn and will be taxed according to the retirement lump sum table, which includes a tax-free lump sum of R550 000,’ National Treasury said.

The reforms will be implemented through amendments contained in the Revenue Laws Amendment Bill and the Pension Fund Amendment Bill, both currently before Parliament.

This will enable changes to fund rules of retirement funds.

‘An estimated R5 billion is likely to be raised in 2024/25 due to tax collected as fund members access once-off withdrawals due to the two-pot retirement reform. The seed capital transfer is a once-off event, so this revenue will not flow into the following fiscal years,’ National Treasury said. -SAnews.gov.za

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