The “two pot” retirement system

From 1 March 2024, a new retirement fund system will be introduced.  This will affect employer pension and provident funds; preserver funds as well as retirement annuities. The main purpose of the system is to allow members of retirement funds to access part of their investments before retirement to help cope with “challenging financial situations”, whilst at the same time leaving a significant part locked in for retirement.

The so-called “two pot” system is actually a three pot one – or to be more accurate one comprising three “components”.   The first is the “vested” component which will comprise the existing accumulated retirement funds as at 29 February 2024 plus future growth thereon.  The second will be one called “savings” into which 10% of the vested component – up to a maximum of R25 000 – will be transferred at the start. The latter will be known as “Seed Capital”. One third of all future contributions will go into this component, from which members will be able to make one withdrawal per annum prior to retirement subject to a minimum of R2 000 each time.  The maximum will be the total in the savings component at any given time.  From 1 March, two thirds of future contributions plus growth thereon will go into the “retirement” component which cannot be accessed except at retirement (minimum age 55), prior death or a member ceasing to be a taxpayer in SA.  Members will only be able to purchase a pension or annuity from this component.

Whilst this system will give members more flexibility regarding access to their accumulated retirement funds, it is advisable for individuals to proceed with caution when considering accessing the savings component.  Firstly, such withdrawals will diminish actual future retirement benefits and secondly the withdrawals are added to income for tax purposes and therefore taxed at marginal rates.

This is only meant to serve as a brief overview of the new system and your Maximus Adviser will be happy to discuss with you in more detail how this will affect you.

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