Dave Edgar, Trust Officer, provides an update on the new system that comes into effect on 1 September.
A year has passed since I wrote an article in Personal Opinions about the ‘two pot’ retirement system. At the time, the proposed implementation date was 01 March 2024. It was expected that there would be delays in the implementation of the new system, which will now be on 01 September 2024.
On introduction of the ‘two-pot’ system, one third of a member’s contributions to retirement funds (Pension Fund, Provident Fund and Retirement Annuities) will be allocated to a ‘savings pot’ and the other two thirds will be allocated to a ‘retirement pot’.
The current retirement savings of individuals will become ‘vested benefits’ at the date of the implementation of the ‘two-pot’ system and will effectively create a third pot. These ‘vested’ retirement savings will be subject to the current retirement rules.
The ‘savings pot’ will allow a member to have one withdrawal per year from this pot. These withdrawals will be taxed at the member’s marginal rate of tax and requires a minimum withdrawal of R2,000. The initial seeding of this pot will be 10% from the vested component, capped at R30,000.
The ‘retirement pot’ will not be accessible and at age 55, or later, will have to be used to purchase a compulsory annuity for the individual. Any funds that remain in the ‘savings pot’ at retirement can be taken as cash or added back into the ‘retirement pot’.
Clients who are invested in a Provident Fund or Preservation Provident Fund and were 55 years or older on 01 March 2021 will be able to choose whether to opt into the new ‘two pot’ retirement system or to remain in the old system.
We would recommend that your ‘savings pot’ remains invested to benefit from the tax-free compounding growth within a retirement fund. If you do decide to withdraw funds from your savings component, please discuss the tax implications with your Trust Officer.