Not everyone will be included in South Africa’s new retirement system

The new two-pot retirement system is less than two months away, but not every retirement fund member will be included.

The new system will see one-third of all retirement savings from 1 September 2024 onwards go into a “savings” pot, which will be accessible before retirement.

A second “retirement” pot will hold the remaining two-thirds of savings and only be accessible upon retirement.

A third vested pot will hold all the retirement savings from before retirement and follow current legislation.

“This new approach to retirement savings, effective 1 September 2024, is designed to strike a balance between long-term financial security and immediate financial needs,” said Alexforbes.

“This marks a significant shift from the traditional savings model.”

Although everyone is anticipating access to their retirement savings, Alexforbes said that it is important to note that the following exclusions apply:

• Legacy retirement annuity funds

• Beneficiary funds

• Unclaimed benefit funds

• Pensioners

• Members who were 55 years and older on 1 March 2021 who do not choose to opt into the two-pot retirement system between 1 September 2024 and 1 September 2025

The new system is designed for emergencies, such as during the Covid-19 pandemic.

Alexforbes said that the savings pot can if other options have been exhausted, be effectively used to assist people to:

• Get out of unsecured debt – short-term (personal or microloans)

• Save for children’s education – long term, 18 years and more

• Access cash at retirement

There are, however, greater risks for those who withdraw from the savings pot.

New members who contribute 15% of their income to their retirement savings could see their replacement ratio (the percentage of an individual’s employment income that is replaced by retirement) rise to 75% if they don’t access the savings pot prior to retirement.

For those who access the 100% annual withdrawal limit, this will drop to a 50% replacement ratio:

Tax and withdrawal considerations

Alexforbes added that understanding the tax specifications set by SARS is also crucial, as these set the basis for applying tax for savings claims at marginal rates. Making a withdrawal can push an individual into a higher tax bracket.

Savings withdrawal benefits are taxed at marginal rates.

Notably, these claims have no impact on the retirement tax table, meaning that it will not erode the R550,000 that can be taken tax-free upon retirement.

Some individuals may also encounter special additional requirements before getting access to their savings pot:

• Consent is required by a non-member spouse where divorce proceedings are underway

• Where the member has a pension-backed housing loan in place, a check needs to be undertaken to ensure that the member will have sufficient money to cover the loan following the withdrawal

Several other problems that could result in the withdrawals being delayed include:

• The fund’s make-up, which requires additional calculations (such as defined benefit funds)

• Tax issues (depending on an individual’s circumstances)

• Additional requirements to mitigate fraudulent claims

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