On June 1, President Cyril Ramaphosa signed into law the Revenue Laws Amendment Bill of 2023, which establishes a two-pot retirement system.
The two-pot retirement system will give people who have retirement funds, access to their retirement savings without having to resign or cash out entire pension funds.
While the two-pot retirement system will only come into effect on September 1, 2024, it is essential that people are informed about the two-pot retirement system.
Guy Chennells, Chief Commercial Officer of Discovery Corporate and Employee Benefits, outlines some of the basic details regarding the new two-pot retirement system, to help people to understand how the new system works.
According to Chennells, everyone will start out in September with 10% of their retirement money - up to a maximum of R30,000 - available to withdraw - called seeding capital.
Every separate retirement contract or policy people have will receive seeding capital up to the rand maximum.
Chennells said that it is likely that retirement fund members will only be able start making withdrawals from mid-September 2024 and not from the September 1 official start date.
This is because administrators will need time to do the seeding capital calculations, as well as allocations, and ensure that is all settled before confirming the amount available in the savings component.
“Everyone can make a withdrawal once a tax year, and retirement fund members will lose nothing by leaving their money in the fund until they really need it,” Chennells said.
People need to remember that the money that they are withdrawing is intended for their retirement, so they should only take it if their financial needs are urgent enough and there are no other alternatives.
According to Chennells, the withdrawals from the retirement funds will be taxed by the South African Revenue Services (Sars) at every individual’s marginal tax rate.
There will also be administration fees deducted before the net withdrawal amount is paid out.
“Sars may claim any money a person owes them from these withdrawals before they get paid (IT88s). So, everyone should think twice before withdrawing if they owe Sars something,” Chennells said.
According to Chennells, the rest of the money that retirement fund members have saved before September 1, 2024 will have the same rules apply as before, in that they can still access that money if they leave their employer in the future.
Chennells said that this should be encouraged, but people should know that they do not need to resign before September 1 to access this money, as it would still be accessible if they resigned at a later date after September 1.
According to Chennells, provident fund members who were 55 or older on March 1, 2021, and have not moved funds since then, can opt in for the two-pot retirement system. They can opt-in before September 1, 2025 because they have 12 months to opt in.
“If they don’t convert to the two-pot system, all their future contributions will still be accessible as cash if they resign or retire. This only applies to provident fund member, not pension funds,” Chennells said.
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