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September 18, 2024As of 1 September 2024, significant changes have been introduced to the retirement landscape in South Africa with the implementation of the two-pot retirement system. This system allows members of pension funds, provident funds, and related schemes to access a portion of their savings while still working. With this shift, it is essential to understand how the system works, the tax implications, and what it means for your retirement savings.
The two-pot system divides retirement savings into three components: the Vested Component, the Savings Component, and the Retirement Component. Each serves a specific purpose, from immediate savings withdrawals to long-term retirement planning. Understanding how each component functions and how the tax system applies to withdrawals is crucial for making informed decisions. This Q&A section addresses the key questions about the system and how to navigate it effectively.
Q&A Section:
1. What are the three components of the two-pot retirement system?
The system splits retirement savings into three parts:
• Vested Component: Represents the total value of the member’s interest as of 31 August 2024, minus 10% (capped at R30,000) which is moved to the Savings Component.
• Savings Component: One-third of the contributions made after 1 September 2024, will go here. Members can withdraw funds from this component once a year.
• Retirement Component: Two-thirds of the contributions made after 1 September 2024, will go here, which can only be accessed upon retirement.
2. Can I withdraw money from my retirement savings before retirement?
Yes, withdrawals are permitted from the Savings Component. However, the withdrawal must be at least R2,000 and can only happen once per tax year. The amount available depends on the balance in the Savings Component, and withdrawals are subject to income tax.
3. What taxes apply when I make a withdrawal?
Withdrawals from the Savings Component are taxed based on your marginal tax rate. Unlike other retirement withdrawals, there are no exemptions or tax-free portions. Ensure that you are registered for income tax, as the withdrawal process requires a valid tax reference number.
4. What happens to the funds in the Retirement Component if I resign or am retrenched?
The Retirement Component cannot be withdrawn as a lump sum in cases of resignation, dismissal, or retrenchment. Instead, the amount must be transferred to another approved retirement fund. It remains locked until you retire.
5. Can I transfer my retirement funds to another pension or provident fund?
Yes, if your employer introduces a new fund, or if you are part of a transfer arrangement, you can move your Vested, Savings, and Retirement Components to another approved fund without incurring tax liabilities.
6. How do I ensure I’m registered for tax before making a withdrawal?
Before requesting any withdrawals from your Savings Component, you must confirm your tax registration status. You can check or request your tax number through the SARS Online Query System or via WhatsApp at 0800 11 7277.
The two-pot retirement system offers flexibility, but it also requires a solid understanding of its tax implications and limitations. By familiarising yourself with the rules and ensuring proper tax registration, you can make informed decisions about your retirement savings.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.