Allan Gray and Coronation have warned South Africans to carefully consider the impact of withdrawing from their savings under the new two-pot system.<\/p>\n\n\n\n
The two-pot retirement system is a reform that will allow retirement fund members to make partial withdrawals from their retirement funds before retirement.<\/p>\n\n\n\n
This reform, which will come into effect on 1 September 2024, will split retirement savings into a one-third savings component and a two-thirds retirement component.<\/p>\n\n\n\n
South African retirement fund holders will have access to a cash portion \u2013 the savings component – while preserving the rest for retirement.<\/p>\n\n\n\n
The new two-pot system aims to help South Africans in financial distress access cash without resorting to extreme measures, like resigning to access their retirement funds.<\/p>\n\n\n\n
Getting immediate access to a lot of money when the two-pot system kicks in on 1 September 2024 can cause reckless financial behaviour among some people.<\/p>\n\n\n\n
Many asset managers, including Allan Gray and Coronation, have warned South Africans that it is detrimental for them to withdraw retirement funds unless necessary.<\/p>\n\n\n\n
Allan Gray cautioned its members that withdrawing from their savings pot could push them into a higher tax bracket.<\/p>\n\n\n\n
Allan Gray\u2019s retail legal team manager, Jaya Leibowitz, said while the savings component allows people access to cash, it should not be viewed as a discretionary savings account.<\/p>\n\n\n\n
When people withdraw money from their retirement savings, it reduces the amount of money for retirement.<\/p>\n\n\n\n
Another consequence of withdrawing money is that it will be taxed and can potentially push someone into a higher tax bracket.<\/p>\n\n\n\n
Any amount accessed in cash as a savings withdrawal benefit will be taxed at the person\u2019s marginal income tax rate.<\/p>\n\n\n\n
The marginal income tax rate will depend on your taxable income for the tax year, including the withdrawal amount.<\/p>\n\n\n\n
The retirement fund or its administrator will apply for a tax directive from the South African Revenue Service and deduct the tax before paying you your benefit.<\/p>\n\n\n\n
Coronation\u2019s head of personal investments, Pieter Koekemoer, echoed Leibowitz\u2019s concerns about tax and reduced retirement money.<\/p>\n\n\n\n
Koekemoer said withdrawing funds from retirement savings before maturity has significant tax implications, even under the new two-pot retirement system.<\/p>\n\n\n\n
He urged South Africans to remember that withdrawing funds is not an obligation but merely an option to help them through tough financial times.<\/p>\n\n\n\n
He added that South Africans should resist the urge to withdraw funds from their retirement savings.<\/p>\n\n\n\n
\u201cPreferably, South Africans should not withdraw any amount from their retirement fund to prevent them from interrupting the compound process,\u201d he said.<\/p>\n\n\n\n
By withdrawing funds early, people will lose the tax benefits they received from the government when they contributed towards their retirement annuity.<\/p>\n\n\n\n
\u201cIf you wait until retirement before withdrawing your money, the preferential retirement lump sum tax tables will apply,\u201d he said.<\/p>\n\n\n\n
\u201cHowever, if you withdraw early, the more punitive marginal tax rates will be deducted from your withdrawal. This can significantly impact your retirement.<\/p>\n\n\n\n