What you need to know about South Africa’s new retirement system

South Africa is getting a new two-pot retirement system in September, but several considerations must be considered.

The new two-pot system will see one-third of all retirement savings placed into the “savings” pot, which will be accessible before retirement.

The second “retirement” pot will store two-thirds of all retirement savings and will only be accessible at retirement.

A third “vested pot” will hold most of the retirement savings acquired before the implementation date will follow current legislation.

The system will come into effect on 1 September after the President signs the Revenue Laws Amendment Bill of 2023 into law.

Tax Consulting SA broke down some of the key considerations for the new system:

Seed Capital and Withdrawal Limits

On 31 August 2024, 10% of the value of all existing retirement funds, or R30,000 (whichever is lower) will be allocated to the savings pot.

The initial seeding capital is a once-off transfer at the commencement of the two-pot system and will not repeat.

“The savings pot will be accessible at any time to a fund member, with only one withdrawal permitted in a tax year,” said Tax Consulting SA.

“There is no maximum withdrawal amount set for fund members looking to withdraw from their savings pot, but it must be a minimum of R2,000.”

SARS Has the First Right to Your Savings Pot Withdrawals

Fund members must be aware that before any payment is released, the fund administrator must apply to SARS for a tax directive.

If the taxpayer has an outstanding tax debt with SARS, the fund administrator will be issued a notice to pay this debt first from the withdrawal amount and then pay the taxpayer the balance. 

Annual Withdrawals are not limited to a Single Policy Per Tax Year

A fund member is able to make one annual withdrawal per policy.

“An example of this scenario is where an individual is contributing to three policies; the fund member would be eligible to make an annual withdrawal from each respective policy,” said Tax Consulting SA.

“Needless to say, a fund member will be limited to the actual amount that is held within their savings pot at the time of withdrawal.”

Tax On Savings

A withdrawal from the fund member’s savings pot will be subject to tax at the member’s marginal tax rate.

Thus, any withdrawal will be taxed in the same way as a salary or other similar income.

“The tax on the withdrawals will be withheld by the respective fund administrator and paid directly over to SARS.”

No Resignation Required

Fund members must be aware that the new system has limited their right to withdraw from the retirement pot.

In the past, fund members were permitted to access their total lump sum amount under their retirement policy upon resignation.

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