Many South Africans need clarification about the two-pot system and have numerous questions. With the rising cost of living, every cent matters, and people are eager to learn how they can access the funds, what the consequences might be, and the advantages it offers.

Vantage recently wrote an article on how the process works. We are committed to providing answers to consumers’ questions, empowering them to make informed decisions on how to enhance their financial well-being and improve their current financial status.

Investec economist Annabel Bishop highlights that accessing retirement savings can boost household spending, increasing consumer income. It’s important to remember that taxes still apply in this scenario.

Do You Apply For The Two Pots From 1 September 2024? And How Long Will You Wait For The Money?

The new two-pot system will come into effect on September 1, 2024. Moving forward your retirement contributions will be divided with one-third going into a savings pot and two-thirds towards your retirement pot. You do not need to apply, this will be done automatically. This system is designed to assist South Africans in managing their financial flexibility. The government highlights that the savings pot is there for emergencies while safeguarding your retirement funds.

Explain The Nitty-Gritty Of The Whole System

Anyone who has a retirement fund in South Africa will be eligible for the savings portion withdrawal.

If you are not registered for tax, you cannot make a two-point withdrawal. This means that members need to be registered with SARS before submitting claims to the pot. It is important to register for tax to ensure compliance before claiming. The fund administrator will calculate the seeding amount before members can start submitting claims. 

*Please note that all withdrawals from the savings pot will be subject to a higher marginal tax rate compared to early retirement fund withdrawals.

What Happens When You Owe SARS?

Please note that SARS may require additional payments to be deducted if you have an outstanding tax balance. Before releasing any funds to you the fund will be instructed to deduct any outstanding debt owed to SARS. However, if you have a repayment arrangement with SARS your withdrawal will not be affected.

*NB While contributions to retirement funds are not subject to taxes, they will be subtracted from any withdrawals made in the future.

Do Government Employees Participate In The Retirement Savings System?

The two-pot system manages pension funds for government employees. Members need to be aware that the calculation methods can differ based on their pensionable services offered.

Does The Two-Pot System Limit Anyone’s Access?

The retirement system covers all active funds, excluding legacy annuity policies or funds that are not in use. Members aged 55 and above as of March 2021 are not automatically enrolled in the two-pot retirement system, but they can participate if they choose to do so.

Explain The Claims Process

In a two-pot retirement plan, the fund is split into two parts: one for savings and another for retirement benefits for members. The initial savings withdrawal limit will be the lower of 10% of the retirement fund value or R30,000 with a minimum of R2000 as of August 31st. Moving forward, two-thirds of any new retirement savings will be allocated to the retirement component, which can only be accessed upon reaching retirement age.

*NB The claim will have to be validated by the fund administrator

Here Are The Fees Associated With Making An Early Withdrawal.

• Fund Admin fees
• Tax
• Processing fee

Marginal tax rates for the year ending 28 February 2025

Example Scenarios 1

Sbusiso receives a taxable income of R200,000 annually (equivalent to 16k per month) and is subject to an 18% marginal tax rate. Additionally, he incurs an administrator fee of R300.

This scenario may help fund members think about whether it’s wise to dip into the fund for a withdrawal. It’s important to realize that relying on this as an additional source of income might not be the best idea. It could result in receiving much less than expected due to various deductions. Therefore, members should carefully consider their options with the two-pot system before requesting funds.

What Happens If You Don’t Withdraw From Your Savings Pot?

If you do not choose to withdraw from your savings pot the funds will be taxed upon retirement following the lump sum tax table and they are said to be generally low compared to when taken early.

You Are Unable To Make Withdrawals From Your Savings Account If You Have The Following Conditions;

• When you have a divorce case in progress.
• If you have outstanding maintenance payments that the court has mandated, the funds will be collected accordingly.
• If you owe your employer for damages/theft/misconduct

Is It A Good Idea To Take Money Out Of Your Savings Account?

Consumers should be cautious when making yearly withdrawals from their retirement savings, as regular deductions can decrease the overall amount saved for retirement and impact financial security. It is essential to consider the compounding effect of these decisions. Seeking advice from financial advisors and consulting with your fund administrator or company is recommended. In addition, only 6% of South Africans are expected to retire comfortably, emphasizing the need for prudent financial planning to avoid relying on other income sources in retirement.

Seek Help Before You Dig Deeper Into Your Two-Pot Retirement

The Office of the Pension Funds Adjudicator (OPFA) is responsible for investigating and resolving complaints related to the correct application of the two-pot retirement system. Members are encouraged to reach out to their funds for information about their benefits. Funds should update their rules and communicate with members to explain their benefits and the implications of the two-pot retirement system. It is recommended that members contact their funds to inquire about their benefits.