Two-pot retirement system: Experts answer your key questions

28/06/2024

While the two-pot retirement system that was signed into law will only come into effect later this year, people have numerous questions that they need answers to.

President Cyril Ramaphosa on June 1, 2024 signed the Revenue Laws Amendment Bill of 2023.

A statement from the Presidency said that Revenue Laws Amendment Bill of 2023 establishes a ‘two-pot’ system which will give members access to retirement savings without having to resign or cash out their entire pension funds.

“The much talked about two-pot retirement system, which is scheduled to be implemented on September 1, 2024, will have a significant impact on your retirement investments,” Ester Ochse, Product Head: Integrated Advice, FNB said.

“The two-pot system gives South Africans access to some of their retirement savings in the case of emergencies while ensuring that they still save the majority left in their pension or retirement fund.”

Samukelo Zwane, head of Product, FNB Wealth and Investments said the new retirement system is a big improvement for SA retirement regulations and will help strike a healthy balance between access to retirement savings and preservation.

Ochse and Zwane unpack key questions to help South Africans know and understand the new two-pot retirement system better.

What is the two-pot retirement system?

With the two-pot retirement system, your retirement savings will be divided into three pots: vested pot, retirement pot and savings pot.

From the September 1, 2024, when the new retirement system will come into effect, your retirement savings will be treated as follows:

– Everything you have already saved will be identified as vested and will stay in the vested pot while existing scheme rules will continue to apply to the vested pot.

– Two thirds of all future contributions will go into the retirement pot which you will not have access to until you retire.

– One third of future contributions will go into the savings pot which can be accessed only once in a tax year (March 1 to February 28/29).

The above is subject to some exemptions and applicable tax rules.

What happens on September 1, 2024?

Ten percent of your existing retirement fund will be transferred to the savings pot, with a maximum cap of R30,000.

One-third of all future contributions will go into the savings pot, while two-thirds will stay in the retirement pot.

For example, if you contribute R1,200 each month to retirement, from September 1, R800 will go into your retirement pot and R400 will go into your savings pot.

When can I use the money in my savings pot?

You can make one withdrawal in a tax year.

The minimum withdrawal is R2,000 and the withdrawal will be taxed in line with your marginal tax rate which will be determined by Sars.

What happens if I resign or lose my job?

Funds in the savings pot can be accessed again in the same tax year if you resign or are retrenched and are no longer a member of the fund as a result.

However, any money in your vested pot is still subject to the old rules and you cannot touch your retirement pot until retirement.

What happens to my savings pot at retirement?

At retirement, you can decide to take some or all of the money in your savings pot as a single lump sum payment subject to applicable tax.

The other choice is to use those funds to purchase an annuity as with the retirement pot.

How will the withdrawal affect my future?

Saving for retirement is important, so taking money out of your retirement savings can slow down this growth.

It might feel like a small amount of money that you are withdrawing now, however, it could make a big difference to the amount of money in your retirement fund when you retire.

Withdrawing early can also also limit your lump sum value at retirement. This means that you should only take out the money if it's an emergency and when you have no other options.

Why are people who were provident fund members and over age 55 on the March 1, 2021 exempt from the new rules?

These members are close to retirement, so the introduction of the new rules might negatively impact their retirement planning.

The exemption from the two-pot retirement system can ensure that their old provident fund benefits remain protected.

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