It’s lastly taking place: The Pension Funds Modification Invoice has been signed into regulation. Because of this from 1 September members of South African retirement funds now belong to a two-pot retirement system.
We’ve compiled this detailed breakdown to share necessary need-to-knows to navigate this new period with know-how.
The 2-pot retirement system modifications how South Africans save for retirement. The objective is to offer a stability between permitting entry to funds for emergencies and preserving the majority of financial savings for retirement.
Implications for present retirees
- Retirement fund members who have been 55 years previous when the brand new system was introduced on 1 March 2021 aren’t robotically included within the new system.
- Provident fund members who have been 55 years previous when the brand new system was introduced on 1 March 2021 can opt-in to the two-pot system if their fund immediately is identical fund they belong to on 1 March 2021. They maintain their provident fund rights till they retire from the fund.
The 2-pot system doesn’t apply to the next merchandise: Beneficiary funds, unclaimed profit funds, dormant/closed funds, and legacy retirement annuity funds.
Two-pot system breakdown
The Entry pot (the primary pot, also referred to as the ⅓ financial savings pot)
From 1 September 2024, one-third of all contributions to your retirement fund shall be added to the financial savings pot. You might be allowed to withdraw every year (tax yr) from this pot.
The Preservation pot (the second pot, also referred to as the ⅔ financial savings pot)
That is the obligatory preservation pot. Two-thirds of all of your retirement fund contributions shall be allotted to the preservation pot.
The Vested pot (the lesser-known ‘third’ pot)
Should you’re an lively contributor to a retirement fund immediately, there shall be three pots you want to concentrate on. The third pot is the vested part pot. Because of this all of the retirement financial savings you’ve constructed up from the day you began to put money into a retirement fund up till 1 September 2024, shall be allotted to the vested pot. There shall be no future contributions to the vested pot – from 1 September 2024 contributions shall be cut up between the Entry pot (1/3) and the Preservation pot (2/3).
Two-pot system guidelines
Entry pot guidelines (⅓ pot)
- Should you belong to a couple of Regulation 28 product (i.e. a retirement fund product), the foundations apply to every fund. So, in case you are a member of three funds, you may withdraw all of the entry pot contributions throughout all three funds.
- You want a minimal of R2,000 in your entry pot to make a withdrawal.
12 months 1 of the two-pot system
- As there gained’t be any cash within the entry pot as soon as the system kicks into gear in September, a seeding quantity shall be made out there to cater to people who require fast entry to money. This seeding quantity will come from the vested pot.
- 10% of the quantity in your vested pot (to a most of R30,000), shall be transferred to your entry pot. So for instance, if you have already got R250,000 saved up in your retirement annuity, R25,000 shall be transferred to your entry pot.
- Should you don’t withdraw this seeding quantity out of your entry pot, it’s going to simply roll over into the following yr.
- All withdrawals are topic to marginal tax charges and administration prices from the fund administrator. These prices could also be fairly excessive.
12 months 2 and on-wards of the two-pot system
- The utmost withdrawal restrict of R30,000 solely applies to the primary yr. From yr 2 on-wards, 100% of the contributions to the entry pot might be accessed.
- All withdrawals are topic to marginal tax charges and administration prices from the fund administrator.
Preservation pot guidelines (⅔ pot)
You’ll be able to solely entry the funds from the preservation pot while you retire, go away or to migrate.
Vested pot guidelines (present retirement financial savings pot)
While you resign or are retrenched, you may nonetheless entry the complete quantity from the vested pot. That’s a vested proper for people. E.g. Should you resign or get retrenched in two years, you may nonetheless entry all of the contributions in your entry pot in addition to your vested pot (i.e. your ‘third’ pot.)
First withdrawal need-to-knows
- In case you are determined to withdraw the seeding quantity out of your entry pot in September, double-check whether or not your fund administrator is prepared earlier than embarking on the applying course of.
- Verify directors’ prices earlier than submitting your withdrawal software. These prices are anticipated to be fairly excessive.
- Guarantee your tax is so as. Should you owe SARS cash, they will even deduct any excellent taxes along with the tax you’ll pay on the withdrawal.
- Bear in mind: Retirement financial savings is a long-term funding and must be handled as such. Withdrawal will negatively impression your earnings substitute ratio.
Why you could become involved
- Turn into an lively participant in your retirement financial savings and verify how your fund is planning to allocate the entry pot funds. As one-third of your retirement financial savings can now be accessed yearly, that funding is successfully extra short-term. This requires larger liquidity. How the funding technique for the entry pot shall be affected, is determined by the fund’s funding supervisor (it won’t be altered in any respect – it’s nonetheless early days).
- That stated, it’s necessary to keep in mind that liquidity can nonetheless be achieved with equities (so be sure that your administrator doesn’t simply maintain ⅓ of your retirement contributions in a financial savings account).
- All retirement funds are by regulation required to have a retirement advantages counselor. Seek the advice of them in the event you’re unsure at any level.
Reaching retirement age beneath the two-pot system
While you attain retirement age, the identical guidelines apply. You’ll be able to nonetheless entry a 3rd of your financial savings in money (the primary R550,000 exempted from tax), and you’ll nonetheless be required to buy an annuity with the rest of your financial savings.
Divorcing beneath the two-pot system
The partner is entitled to funds throughout all of the pots proportionally.
Retire weblog
Saving for retirement is the most important funding most of us will ever make. Sadly, it may also be very sophisticated. On this month-to-month weblog, Carina Jooste responds to frequent retirement questions, starting from which merchandise are greatest suited to completely different circumstances to environment friendly tax remedies.
