South Africa’s retirement landscape is evolving, and the new two-pot system is at the heart of these changes. This reform, implemented on 1 September 2024, is designed to give individuals more financial flexibility with their retirement savings while ensuring that they still preserve enough for retirement. Having money in your savings pot does not guarantee automatic payments. You must apply for withdrawals, and the process includes verification steps.
How Does the Two-Pot System Work?
The system splits your retirement savings into two “pots”:
- Savings Pot: This is the accessible portion, designed to help individuals during financial emergencies. From 1 September 2024, you can withdraw up to 10% of your retirement savings (up to a maximum of R30,000).
- Retirement Pot: This pot remains untouched until retirement, safeguarding long-term financial security.
Benefits and Challenges of the Two-Pot System
The system aims to reduce the need for workers to resign just to access their pension, giving them flexibility without jeopardizing their future security. However, dipping into your savings comes with consequences. Every withdrawal reduces the amount you’ll have at retirement, and withdrawals are taxed at your marginal rate, meaning you might end up paying more tax than you expected.
Frequently Asked Questions (FAQs)
What is the two-pot system? The two-pot system is a retirement reform where savings are divided into two parts: one that can be accessed before retirement and another reserved for retirement.
When does the system take effect? The system becomes effective on 1 September 2024
How much can I withdraw from my savings pot? Upon implementation, 10% of your savings (up to R30,000) will be moved to your accessible savings pot. However, the savings pot must contain at least R2,000 for withdrawals to be made
Will I pay tax on withdrawals? Yes, withdrawals from the savings pot are taxed at your marginal income tax rate. Retirement fund administrators will apply for a tax directive on your behalf from SARS. More info on SARS website
Do I need to be a registered taxpayer to withdraw? Yes, you must be registered with SARS to make withdrawals
How will withdrawals affect my retirement savings? Withdrawals reduce the amount you’ll have available at retirement, and higher withdrawals may increase your tax bracket
Can I withdraw all my retirement savings before retirement? No, only the savings pot is accessible, and there are limits to how much you can withdraw
What if my fund hasn’t updated its rules by 1 September 2024? If your fund’s rules aren’t updated by the deadline, your withdrawals may be delayed
Are there any administrative fees? Yes, some funds may charge administrative fees for processing withdrawal applications
How long does it take to get my money after I apply for withdrawal? The process could take several working days, depending on verification and SARS approval
The two-pot retirement system is a step towards giving South Africans more control over their finances without undermining their long-term security. However, it’s crucial to approach withdrawals cautiously and understand the tax implications. Further reading