Two Pot Retirement System

The Minister of Finance, Enoch Godongwana, delivered the 2024 Budget speech on 21 February 2024 where he announced that the much anticipated two-pot system is on track for implementation on 1 September 2024. The new retirement system will allow members to withdraw a portion of their savings before ending service while also making provision for compulsory preservation.

The Revenue Laws Amendment Bill, which introduces the two-pot system into the tax laws, was passed by the National Assembly on 20 February 2024 with an effective date of 1 September 2024. This Bill will now proceed to the National Council of Provinces for deliberation. There is a legislative process that is currently underway, which National Treasury aims to finalise in the next few months to ensure that industry and regulators can prepare for implementation.

This is a topical discussion among many Fund members, with different versions of how the two-pot system will work and how much and when members will be able to access their retirement savings, circulating. However, it is important that members receive their information from a reliable source, like the NFMW, to ensure that they have the facts and manage their expectations for when the two-pot system comes into effect.

We answer some of the most frequently asked questions regarding the two-pot system based on the information made available by the National Treasury.

How will the two-pot system work?

In summary, the two-pot system will operate as follows:

Vested component: All contributions and growth accumulated up to 31 August 2024 will be placed into the vested pot. Members' rights will be protected for the funds they have already contributed, and the vested pot will continue to operate under the rules that were in place before the 1 September 2024 amendments.

Savings component: Seed capital will become available on 1 September 2024 for members to withdraw. The savings in this pot can be accessed by the member once during a tax year, without having to terminate service. Members will be taxed at their marginal tax rates, on withdrawals made from the savings pot.

Retirement component: The retirement pot is designated for compulsory preservation and will only be paid to the member upon retirement. At retirement, the total value (if more than R165 000) in the retirement pot must be paid in the form of an annuity (monthly income).

When will I be allowed to access a portion of my retirement savings?

The implementation date for the two-pot system is set for 1 September 2024. You will be able to submit your application to withdraw the seed capital in your savings pot from this date. Thereafter, only one withdrawal from the savings pot can be made per tax year. The money will not be immediately available as the Fund will need to process the application, i.e., verification of banking details, calculation of tax payable, etc., before the money will be paid to you.

How much money will I be able to withdraw?

Seed capital (once-off) withdrawals: The seed capital amount will be taken from your vested pot (contributions plus investment returns earned up to 31 August 2024) and placed in your savings pot on 1 September 2024. The amount that will be made available for you to withdraw is 10% of your retirement savings as at 31 August 2024, limited to a maximum of R30,000. You will not be able to withdraw more than R30,000.

Annual withdrawals: You will be allowed to withdraw all or part (minimum of R2,000) of the amount accumulated in the savings pot once in each tax year.

NB! Tax and administration costs will be deducted from the withdrawal amount, and the balance paid into your bank account.

How much tax will I pay on withdrawals from the savings pot?

Any withdrawals made from the savings component will be taxed at your marginal tax rates if withdrawn before retirement. A withholding tax process will apply, and the withdrawal amount will be added to your annual income at the end of the tax year, potentially resulting in your tax bracket shifting to a higher bracket, which means you may end up with a higher tax amount to pay.

Will the two-pot system apply to all Fund members?

The two-pot system will not automatically apply to members who were 55 years and older on 1 March 2021. These members will have a choice to opt into the two-pot system.

How will I be able to make a withdrawal from the savings pot?

Members who are registered for Sanlam online access will be able to make easy automated withdrawals using their online access once the two-pot system has come into effect. Hard copy forms will also be made available on request, but these will be processed manually, and it may take longer for payment to be made. Please note that your tax affairs must be in order, and the Fund must have your correct details on record, including contact details, ID-number, tax number, and correct surname (e.g., marriage/divorce), to process your withdrawal application.

Therefore, all members are urged to register for online access to avoid unnecessary delays and ensure timeous processing of the withdrawal applications.