Summarised from J.Leibowitz, Retail Legal team at Allan Gray.
The Two-Pot Retirement System enables you to access a small portion of your retirement savings before you retire, for emergencies. The majority of your savings will remain “preserved”, meaning you will have to keep the majority of your retirement savings invested until you retire.
Who is the two pot system for?
Any South African who has a pension fund, provident fund, retirement annuity, or a preservation fund.
If you have a provident fund and you were over 55 years old on 1 March 2021 you can continue with the old system or adopt the new one.
Quote
“The two-pot retirement system is a reform that will allow retirement fund members to make partial withdrawals from their retirement funds before retirement while preserving a portion that can only be accessed at retirement to help improve retirement outcomes.”
J. Leibowitz
Key Information
- Implementation Date : 1st September 2024 ( Tentative )
- Affects current and future retirement fund members
- Intention : Promote the preservation of retirement fund investments until members retire, while also allowing them access to a portion of their accumulated savings during their working years.
- Workings thereof : All contributions to provident, pension and retirement annuity funds, will be split into two components: One-third(1/3) of the contributions will be credited to a savings component, which members can access before retirement in the event of an emergency, and the remaining two-thirds(2/3) will be credited to a retirement component, which will be inaccessible before a member retires, and at retirement must be used to purchase a pension-providing product.
- Savings Component (1/3) – Min R2000 pa , Max R30 000 pa , limited to one(1) withdrawal annually , taxed as gross income at marginal rate.
- Retirement Component (2/3) — Inaccessible and preserved until retirement (earliest at age 55) . Must be 100% annuitized when retired. Min 2.5% pa , Max 17.5% pa.
There are stringent conditions for accessibility contact us for more information
Summary Comment
“The two-pot system has the potential to create good outcomes for retirement fund members, helping those who desperately need some access, while ensuring greater levels of preservation due to the inaccessibility of the retirement component.
Having some access to your retirement investment without having to resign from employment may assist you in times of need. However, it is important to remember that the intended purpose of your retirement investment is to provide you with an income in retirement. While the savings component allows you access, it is prudent to guard against thinking of it as a discretionary savings account. Each time you access a savings withdrawal benefit, the amount available to provide you with an income in retirement will be reduced. In addition, that savings withdrawal benefit will be taxed and has the potential to push you into a higher tax bracket, depending on your income and the value of the withdrawal.”