On 25 October 2023 National Treasury and SARS provided important feedback at the recent sitting of the Standing Committee on Finance as part of the parliamentary process regarding the much anticipated two-pot retirement system. The final legislation has not yet been issued but this is what we now currently. The date was set for 1 March 2025 but it seems that it may be once again be moved back to 1 March 2024. It was changed due to an outcry by retirement members who are anxious to access their funds.
Here are a few points on the Two-Pot System:
- The system is likely to positively change behaviour if it delivers on its intention. Currently only 9.6% people don’t take their money when they change jobs. The new system could double the money at retirement.
- Reason for implementation: to help people who are in need to access their compulsory money.
- It applies to any member of an employer pension/provident fund, a retirement annuity, or a preservation fund.
- From 1 March 2024, one-third of the member’s contributions will be paid into the Savings Component of the fund. This money will be accessible prior to retirement. One withdrawal will be allowed in a calendar year if the minimum value in the fund is R2000 or more. Withdrawals will attract fees and will be taxed at marginal rates. At retirement, funds can be taken as a cash lump sum and will be taxed according to the lump sum tax tables. 10% of the value of your retirement fund as at February 2024 will be used as seed capital for this component. This is referred to as the “vested component” of your existing retirement fund. This is capped at a maximum of R30 000.
- Two-thirds of the member’s contribution will go into the Retirement Component of the fund. This pot will be reserved until retirement and will be used to buy annuity income.
- There is also a Vested Component for existing members. The value of your Provident Fund on 29 February 2024. will be ring-fenced in this component including growth. This means you can access the funds in the Vested Component if you leave your employer or when you retire from the fund. If you resign or are retrenched in the future, you may take the full value and the current lump sum withdrawal tables will apply.
- Speak to your advisor with regards to asset allocation going forward.