What You Need To Know About The Two-Pot Retirement Saving System

By Sheldene du Plessis – Senior Accountant: Ascendant Financial Services

South Africa’s retirement savings system is undergoing a transformation, with the new system scheduled to begin on 1 September 2024.

Starting from this date, your current retirement savings and future contributions will be divided into three segments. Your accumulated retirement savings up to 31 August 2024 will be allocated to a vested segment.

The Vested Segment: This segment includes all your retirement savings as of 31 August 2024. These funds will be safeguarded, and the new two-pot rules will not affect them. Additionally, 10% of your retirement savings or R30,000, whichever is less, will be moved to the savings segment.

The Savings Segment: From 1 September 2024, one-third of your contributions will go into this segment. You will be able to access this segment once per tax year in case of emergencies, with a minimum withdrawal amount of R2,000, which will be taxed at your marginal income tax rate. A processing fee will also apply.

The Retirement Segment: The remaining two-thirds of your contributions from 1 September 2024 will be allocated to this segment. These funds can only be accessed upon retirement and must be used to purchase a pension.

The new two-pot retirement savings system in South Africa aims to encourage the preservation of retirement fund investments until members retire, while also providing access to a portion of their accumulated savings during their working years. Starting from the implementation date, all contributions to provident, pension, and retirement annuity funds will be subject to these rules.

Withdrawals from your savings segment will be taxed at your marginal income tax rate, which depends on your total taxable income for the tax year, including the amount withdrawn. The retirement fund or its administrator will request a tax directive from SARS and deduct the tax before paying out your benefit.

Each time you make a withdrawal from the savings segment, it reduces the amount available for your retirement income. Moreover, this withdrawal will be taxed and could potentially push you into a higher tax bracket, depending on your income and the amount withdrawn.

It’s crucial to understand that while the savings segment may seem appealing, it should primarily serve as a reserve for emergencies. The allure of short-term financial relief should be approached with caution.





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