WHAT YOU SHOULD KNOW ABOUT THE TWO-POT SYSTEM?
1 September 2024 – Implementation Date
Vested
Your retirement savings up to 31 August 2024, i.e. your existing retirement fund savings. All the existing “old” rules apply, e.g. you may access retirement savings when you resign from your employment, you may make a once-off withdrawal before retirement (preservation fund members), and at retirement one third may be taken as a cash lump sum while two thirds must be used to purchase an annuity.
Savings
From 1 September 1/3 of your contributions goes here.
There will be an opportunity to “seed” your savings pot with ten per cent, limited to
R30 000, of your vested pot (as of 31 August 2024), which can be accessed immediately on the implementation date.
You may withdraw from your savings pot once per tax year – from a minimum of R2 000 to the full amount. For the purposes of SARS, the amount will be added to all your other income and taxed at your marginal tax rate (PAYE tax rates). You may also transfer money from the savings pot to the retirement pot tax-free. However, a transfer from the retirement pot to the savings pot is not allowed.
Retirement
2/3 of your contributions.
No amounts may be paid to you out of this pot until normal retirement age, not even if you resign from your job or if you are retrenched.
On retirement, you must buy an annuity with the entire amount in the retirement pot. Amounts less than the minimum amount (of R247 500) in this pot may be taken as a lump sum which will be exempt from tax.
It’s compulsory. The changes will apply to all retirement funds, including public sector funds such as the Government Employees Pension Fund and the Transnet funds. Certain so-called “legacy” retirement annuities will be exempt. (In general, legacy retirement annuities refer to policies – entered before 1 September 2024 – from life insurance companies that have additional features, such as universal life policies with life or lump-sum disability cover.)
55 Plussers have a choice. Provident fund members who were 55 years and older on 1 March 2021 will, by default, be excluded from the two-pot regime. They must choose to opt in.
You still enjoy the tax benefits of being a retirement fund member. You can claim a tax deduction on these contributions, namely the lesser of R350 000 and 27,5% of remuneration or taxable income.
Think of your future self. Although the government has made these changes to give members access to savings before retirement, it is never in your best interest to withdraw monies from your retirement fund before your retirement. You will be paying tax on the amount you withdraw and have less cash and income when you retire. It is recommended that you keep all your retirement savings invested for retirement, including any savings in your savings pot.
It remains one account
You will be able to transfer money between the pots. There will be a once-off transfer of ten percent or R30 000 (whichever is lesser) of your accumulated retirement savings (or vested pot) as at 31 August 2024 to the savings pot, which can be accessed immediately on the implementation date.
You may not withdraw from the retirement pot until you reach normal retirement age, not even if you resign or if you are retrenched. When you retire, you have to buy an annuity (including a living annuity) with the full amount in the retirement pot, subject to the minimum amount required to buy an annuity as set out below. (If you die whilst a member of a retirement fund, the money in your retirement pot will be paid to your beneficiaries.)
There’s one exception to the rule. If at retirement your total retirement savings are equal to or less than R247 500, you may take the whole amount in cash. This is called the R247 500 de minimis threshold which will be exempt from tax.
Let’s explain:
At retirement Sibusiso has R150 000 in his vested pot and R60 000 in the retirement pot.
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