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Two-pot retirement reform in a nutshell

Two-pot retirement reform in a nutshell
Neesa Moodley
By Neesa Moodley
22 Aug 2024
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After years of workshops, implementation dates moving back and forth and endless debate about how it would work, the two-pot retirement reform implementation date is around the corner. Here’s how it will work from 1 September 2024.

How many pots are there really?


If you have already started saving for retirement, you will have three pots. The money you have saved until 1 September 2024 will be your “vested” pot. The money you save from 1 September 2024 will be split between two pots – the savings pot and the retirement pot.

Read more: Everything you need to know about the two-pot retirement reform


Where can I withdraw money?


You will be able to withdraw from the savings pot once per tax year (March to March each year). On 1 September, you will not have any money in the savings pot. To address this, money will be transferred from your vested pot to your savings pot. The amount transferred will be 10% of the savings in your vested pot, capped at R30,000. The minimum amount that you can withdraw is R2,000.

Examples:

  • If you have R200,000 in your vested pot, R20,000 or 10% will be transferred to your savings pot.

  • If you have less than R20,000, 10% will be less than the minimum R2,000 withdrawal so nothing will be transferred to the savings pot.

  • If you have R2-million in your vested pot, only the maximum R30,000 will be transferred to the savings pot.


When can I withdraw money?


Although the implementation date is 1 September, it is unlikely you will receive money immediately on that date. You will have to put in a withdrawal request to your retirement fund administrator and wait for it to be processed. Fund administrators are anticipating never-before-seen withdrawal volumes and have warned that there may initially be a backlog. Remember that the annual withdrawal is once every tax year, so you could make a withdrawal request now and then another one in April next year.

How will my withdrawal be taxed?


The money you withdraw will be taxed at your marginal tax rate, which is quite punitive if you are in a higher income tax bracket. If you owe SARS any money, this will also automatically be deducted before you receive funds.

Can I change my mind after putting in a withdrawal request?


Once a fund administrator has applied for a tax directive, SARS’ rules state that the withdrawal process cannot be stopped. This means you cannot change your mind once you see the tax implications of your withdrawal request. However, several administrators such as Discovery, Old Mutual, Momentum, Alexforbes, and 10X have two-pot withdrawal calculators on their websites. Use these to calculate your withdrawal. Also, ask your retirement fund administrator what administration fee will be charged. Indications are that the once-off administration fee could range from R300 to as much as R600 per withdrawal.

Who is excluded from the two-pot system?


Anyone who was 55 years or older as of 1 March 2021, and is a member of a provident fund, is excluded from the two-pot system – provided you have not switched to another fund since then.  Your retirement savings are treated the same as they were a year ago with no separate savings pot.

What happens if you have savings in more than one retirement fund? 

The seed funding of 10% of your savings up to a maximum of R30,000 will apply to each of your retirement savings funds. So, for example, if you were saving in a retirement fund independently and you also had a retirement saving fund with your employer, you would be able to access 10% up to a maximum of R30,000 from each fund.

How does this affect the R550,000 I can withdraw tax-free from my retirement savings when I retire? 


The short answer is, it doesn’t. The R550,000 tax-free amount will only be reduced if you made withdrawals from your retirement savings before 1 September 2024. Any withdrawals you make from your savings pot after 1 September will be taxed at your marginal tax rate and do not affect the R550,000 you get tax-free when you retire.

What funds are specifically excluded from the two-pot retirement rules? 


The funds that have been carved out or are excluded are beneficiary funds, unclaimed benefit funds, dormant or closed funds, and legacy retirement annuity funds. DM

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