Our retirement fund industry has undergone significant changes with the introduction of the two-pot retirement system on 1 September 2024. This new system aims to balance the need to preserve long-term savings while providing limited emergency access to funds.
The two-pot system adds significant complexity for retirement fund members and their financial advisors.
Our comprehensive hub is designed to be a practical guide, helping you navigate the rules and regulations surrounding this new retirement framework.
The two-pot reform changes how fund members can access assets in their retirement funds and aims to achieve two objectives:
1
To allow fund members not yet retired access to a portion of their retirement assets in times of acute financial stress.
2
To improve long-term preservation of retirement assets until fund members retire.
What you need to know with Jaco van Tonder:
New contributions to retirement funds will be split into two pots from 1 September 2024.
⅓
Savings component
Seed capital from Vested component
10% of member’s fund value on 31 August 2024
(capped at R30 000)
Transferred as
‘seeding capital’
=
starting balance
Effective 1 September 2024, members will be able to withdraw amounts before retiring from the specific retirement fund.
Withdrawals
Limited to one per tax year
minimum amount of
R2 000
taxed at the member’s marginal income tax rate
Retirement fund administrators have to apply for a South African Revenue Service (SARS) tax directive and withhold the required amount of income tax, before paying the remaining amount to the fund member.
Retirement
Benefits remaining when
the member retires can be withdrawn
(partially or in full)
taxed according to
retirement lump sum table*
*This will take into account previous retirement fund lump sums received but excluding withdrawals from the Savings component.
Any remaining balance in the Savings component at retirement may be added to the Retirement component and used to purchase an annuity.
⅔
Retirement component
Cannot be accessed
by members as cash withdrawals
Total benefit value must be used
to provide an annuity
at retirement
Some exceptions
If benefit amount is
below a certain minimum
or if the member becomes
non-SA tax resident
and remains so for a period
exceeding 3 years
Retirement fund benefits that accrue to members prior to 1 September 2024 will be separately preserved.
Vested component
Members’ current rights will remain protected
and the legislation as it exists currently will continue to apply
Members of preservation funds who have not accessed their once-off withdrawals,
will still be permitted to do this at any time in the future
On retirement, the member will be able to take up to 1/3 of the balance in the Vested component as a
lump sum and use the balance to purchase a compulsory annuity
Any lump sums received on retirement taxed according to
the retirement lump sum table*
*This will take into account previous retirement fund lump sums received but excluding withdrawals from the Savings component.
Rules that apply to
vested provident fund benefits
(pre-1 March 2021 contributions plus growth)
will continue to apply
Members who have been
non-SA tax resident
for a continuous
period of 3 years+
can withdraw funds in the Vested component*
*The withdrawal tax table will be applicable to such a withdrawal, taking into account previous retirement fund lump sums received but excluding withdrawals from the Savings component.
Excluded: Provident and provident preservation fund members over 55 years on 1 March 2021 (they may opt in).
How does the two-pot system work?
New contributions to retirement funds will be split into two pots from 1 September 2024.
⅓
Savings component
Seed capital from Vested component
10% of member’s fund value on 31 August 2024
(capped at R30 000)
Transferred as
‘seeding capital’
=
starting balance
Effective 1 September 2024, members will be able to withdraw amounts before retiring from the specific retirement fund.
Withdrawals
Limited to one per tax year
minimum amount of
R2 000
taxed at the member’s marginal income tax rate
Retirement fund administrators have to apply for a South African Revenue Service (SARS) tax directive and withhold the required amount of income tax, before paying the remaining amount to the fund member.
Retirement
Benefits remaining when
the member retires can be withdrawn
(partially or in full)
taxed according to
retirement lump sum table*
*This will take into account previous retirement fund lump sums received but excluding withdrawals from the Savings component.
Any remaining balance in the Savings component at retirement may be added to the Retirement component and used to purchase an annuity.
⅔
Retirement component
Cannot be accessed
by members as cash withdrawals
Total benefit value must be used
to provide an annuity
at retirement
Some exceptions
If benefit amount is
below a certain minimum
or if the member becomes
non-SA tax resident
and remains so for a period
exceeding 3 years
Retirement fund benefits that accrue to members prior to 1 September 2024 will be separately preserved.
Vested component
Members’ current rights will remain protected
and the legislation as it exists currently will continue to apply
Members of preservation funds who have not accessed their once-off withdrawals,
will still be permitted to do this at any time in the future
On retirement, the member will be able to take up to 1/3 of the balance in the Vested component as a
lump sum and use the balance to purchase a compulsory annuity
Any lump sums received on retirement taxed according to
the retirement lump sum table*
*This will take into account previous retirement fund lump sums received but excluding withdrawals from the Savings component.
Rules that apply to
vested provident fund benefits
(pre-1 March 2021 contributions plus growth)
will continue to apply
Members who have been
non-SA tax resident
for a continuous
period of 3 years+
can withdraw funds in the Vested component*
*The withdrawal tax table will be applicable to such a withdrawal, taking into account previous retirement fund lump sums received but excluding withdrawals from the Savings component.
Excluded: Provident and provident preservation fund members over 55 years on 1 March 2021 (they may opt in).
A practical guide to navigating the two-pot regime – withdrawals from the Savings component
Members are able to withdraw from the Savings component in times of emergency or financial distress. This Q&A covers key details on withdrawals from the Savings component, tax implications, submission of withdrawal instructions, SARS requirements, and the impact on retirement benefits.
How will the two-pot system affect provident and provident preservation fund members who were 55 years or older on 1 March 2021?
These members will not automatically form part of the two-pot system. Their current rights in respect of their fund benefits will remain protected and the legislation as it exists currently will continue to apply. However, they may choose to participate should they wish to do so.
Such members will need to submit an ‘opt-in instruction’ to their provident/provident preservation fund administrators. If a member has opted into the two-pot system, they cannot reverse their decision.
The information, views and opinions provided are general in nature, for informational purposes only, and should not be construed as advice. No action should be taken without appropriate professional guidance. We do not act as advisors or in a fiduciary capacity. While we strive for accuracy and timeliness, we make no guarantees as to completeness or correctness and are not obliged to update the information.
This material does not constitute a full summary of the risks associated with any product, fund, service or strategy. Relevant risk disclosures are available in the applicable documents, which can be requested free of charge. For details on specific funds, please refer to the relevant fact sheets. For mandatory disclosures about this investment, further important information on indices, fund ratings, yields, targeted or projected performance returns, back tested results, model return results, hypothetical performance returns, the investment team, the investment process and specific portfolio names, please click here.
