ThuthukaSA

How Will The 2-Pot Retirement System Affect Your Pension?

The 2-pot retirement system will be implemented on 1 September 2024. Some of our customers have been contacting us wanting to know how this will affect them.

Below are key points that you need to know about the 2-potretirement system and why others call it the3-pot system:

1) Pot 0 = Vested Pot / Component:

All your pension or provident or retirement annuity funds that you have up to 31 August 2024 will go into the vested pot. Current rules will apply. As an example, if you resign from your job, you can withdraw your funds that you have in your vested pot.

2) Pot 1 = Savings Pot / Component:

On 1 September 2024, a maximum of R30 000 from your vested pot will be transferred to the savings pot to form what is called the seed capital. The rules allow for the lower 10% of the amount you have in your vested pot and R30 000 to be transferred to the savings pot. So if you have less than R300 000 in your vested pot, 10% of the funds in the vested pot will be transferred to the savings pot.

Example 1:

Say you have R200 000 in the vested pot,

R20 000 will be transferred into your savings pot

Example 2:

If you have R400 000 in the vested pot,

R30 000 will be transferred into your savings pot

Savings Pot Rules:

  • A third of your monthly contributions will be deposited into your savings pot
  • You will be allowed 100% withdrawal of all the funds in the savings pot at any time prior to retirement
  • One withdrawal will be allowed in a tax year
  • The minimum withdrawal is R2000
  • The maximum withdrawal is the amount in the pot
  • Withdrawals will be taxed at your marginal tax rate
  • The withdrawal amount could push you into a higher tax bracket, thereby increasing your tax liability

3) Pot 2 = Retirement pot / component:

  • Two thirds of your monthly contribution will be allocated to your retirement pot
  • You cannot access money in your retirement pot until you retire
  • You should use all of the money in your retirement pot to buy an annuity
  • You will only be allowed to withdraw the money in your retirement pot when this is less than R247 500
  • You can access your money if you have been a tax resident in another country for at least 3 years

In summary, if you have been a member of a pension or provident fund or you have a retirement annuity, these will not be affected by the new system as all the existing funds will go into the vested pot.

Contact ThuthukaSA if you are planning to go on pension, early pension or to resign from your job. Remember that once you submit the withdrawal form, you will be taxed. Seek advise before you make an irreversible mistake.

Share this knowledge with your loved ones

Facebook
Twitter
LinkedIn
WhatsApp