On June 1, 2024, President Cyril Ramaphosa signed the Revenue Laws Amendment Bill of 2023 into law, marking a shift in South Africa’s retirement savings landscape. The new two-pot retirement system, set to take effect on September 1, 2024, aims to improve the preservation of retirement funds and provide access to these funds during financial emergencies.
The Two-Pot System: An Overview
The two-pot system introduces a novel approach to retirement savings, dividing contributions into three distinct pots: vested, retirement, and savings
Key Features of the Two-Pot System:
- Vested Pot: Contains all pre-existing savings as of September 1, 2024.
- Retirement Pot: Receives two-thirds of all future contributions and remains inaccessible until retirement.
- Savings Pot: Receives one-third of all future contributions and can be accessed once per tax year for emergencies, with a minimum withdrawal of R2,000.
How Will Your Retirement Savings Be Treated?
From September 1, 2024, all existing retirement savings will be classified as “vested.” Future contributions will be split, with two-thirds going to the retirement pot and one-third to the savings pot. For example, with a monthly contribution of R1,200, R800 will go into the retirement pot, and R400 into the savings pot.
Transition Period: What to Expect on September 1, 2024
To facilitate the transition, 10% of your retirement fund will be transferred to the savings pot, subject to a maximum cap of R30,000. This immediate access aims to provide a safety net for unforeseen financial emergencies without compromising long-term savings.
Accessing Your Savings Pot
The savings pot allows withdrawals once per tax year (March 1 to February 28/29), taxed at your marginal rate. In cases of job loss or resignation, fu
nds can be accessed again within the same tax year.
At Retirement: Your Options
Upon retirement, you can take money from the savings pot as a lump sum, subject to taxes, or use it to purchase an annuity for a steady income stream.
Special Exemptions: Who Are They For?
Certain groups have exemptions:
- Provident Fund Members Over 55 (as of March 1, 2021): Can remain under the old system or opt into the new one starting September 1, 2024.
- Pensioners: Already receiving benefits.
- Unclaimed Benefits, Closed Funds, Funds in Liquidation, and Legacy Retirement Annuity Funds: Exempt from the new system.
Tax Implications
Withdrawals before retirement will be taxed at your marginal tax rate. This should be considered to avoid unexpected tax liabilities.
Conclusion
South Africa’s two-pot retirement system offers a balanced approach to managing retirement savings, providing both immediate financial flexibility and long-term security. By understanding the system and managing your contributions and withdrawals wisely, you can ensure a secure and flexible retirement future.
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