Starting September 2024, you will be able to access funds from your retirement fund while protecting most of your savings for retirement.

Do you have a question about the Two-Pot Retirement system? We’ve tried to answer as many as possible in the Questions and Answers below.

What is the Two-Pot Retirement system, and how does it differ from the current retirement system in South Africa?

The Two-Pot Retirement system is a proposed change to South Africa’s retirement savings structure to improve financial security and encourage long-term retirement savings. In this system, your retirement contributions will be divided into two pots: a “Savings Pot”, which is the allocation to your lump sum at retirement, where one-third of your contributions will be allocated, and a “Retirement Pot”, where the remaining two-thirds will be kept for funding your income in retirement. Members will be able to access the savings pot before retirement if required. The Retirement Pot will be preserved until the retirement date.

What’s the rationale behind the Two-Pot Retirement system?

National Treasury proposed the Two-Pot Retirement system to provide a solution for South Africans who struggle financially due to a lack of “rainy day” funds. The system allows for a portion of retirement savings to be accessed in real emergencies while promoting the preservation of most of the savings until retirement.

According to estimates by National Treasury, less than 6% of South Africans retire comfortably, and one of the main reasons behind this alarming statistic is that people cash out their pensions when changing jobs. The new legislation will remove the ability to access retirement funds when changing jobs.

The new rules, however, will only apply to new contributions after 1 September 2024. All retirement savings as of the effective date will be ringfenced as the “Vested Pot”, and the existing rules will continue to apply.

How will the Two-Pot Retirement system function in practice?

From 1 September 2024 your retirement fund contributions will go into two pots – a savings pot and a retirement pot. One-third of your contributions will go into the savings pot, which you can access once a tax year if needed. The remaining two-thirds will go into the retirement pot, which you will not be able to touch until you retire.

Members of retirement funds can apply directly to their pension fund administrators to access withdrawals from their savings pot.

How does the Savings Pot of the Two-Pot Retirement system work, and what are the rules?

The Savings Pot of the Two-Pot Retirement system is effectively a ringfencing of a member’s lump sum at retirement. You can access money from the Savings Pot before you retire, but only once a year. The minimum withdrawal amount from the savings pot is R2 000. There is no maximum amount.

Anything withdrawn from your Savings Pot will be included in your taxable income for that year and taxed at your applicable marginal rate.

A retirement income benefit is used to provide you with monthly income.

When accessing your Savings Pot, the following must be considered:

• A minimum of R2 000 can be withdrawn; if you have less than R2 000 in the Savings Pot, you cannot withdraw.
• You can only withdraw once in a tax year, i.e., between 1 March and 28 February each year.
• There is no maximum withdrawal amount.
• You will be charged an administration fee for the withdrawal, which will be deducted from the amount you want to withdraw.
• You will pay tax on the Savings Pot withdrawal benefit based on your individual marginal tax rate as supplied by SARS.
• In a pension or provident fund, on resignation, you can only cash out your Savings Pot if it is less than R2 000 or you have not already accessed your one withdrawal per tax year. Otherwise, you will be required to preserve this benefit in the same way you will preserve your Retirement Pot benefit.

Which tax tables will apply to the Savings Pot withdrawal?

Your marginal tax rate is determined by SARS and your income – the higher your income, the higher your marginal tax rate.

If you withdraw from your Savings Pot, Old Mutual will request a tax directive from SARS. The amount that SARS provides to Old Mutual will be the amount that Old Mutual will deduct from the amount you have asked for (along with any fees).

The tax tables in this attachment show the difference between the marginal tax rate (which is what you will be charged if you withdraw from your Savings Pot before you retire) and the retirement tax rate, which is the rate that you will be taxed on your lump sum withdrawal at retirement.

How does the seeding – the amount that will be transferred to the Savings Pot – work?

The legislation indicates that from 1 September 2024, a maximum of 10%, capped at R30 000, of the member’s existing savings will be used to seed the accessible Savings Pot. This allocation to the Savings Pot will be automatic. However, you do not need to access this money immediately. If you do not access the funds immediately, they will continue to be invested in your Savings Pot and earn an investment return.

What happens when I leave my organisation?

Old rules will apply to your retirement savings accumulated as at 1 September. You will still have access to some of your accumulated retirement funds (which will be in your vested pot) when you leave – one third of your investment (as at 1 September) can be taken as cash. You can also access what is in your Savings Pot if you leave after September 2024.

What happens if I’m retrenched?

Old rules will apply to retirement savings pre-September 2024.

If you have a pension fund you can take one third in cash (you’ll have to pay tax and fees) and invest your two-thirds in your new company’s pension/provident fund or a retirement annuity.

If you have a provident fund, you can take your retirement savings as cash subject to tax.

You will also be able to access the money in your Savings Pot, provided you haven’t accessed the Savings Pot in that particular Tax Year.

If I leave my current employment in December 2024 can I cash in my full Vested Pot (the money I have saved up until 31 August 2024)?

If you have a pension fund and you resign, you will be able to access all the money in your Vested Pot as well as what is in your Savings Pot (provided that you did not make any prior withdrawal from your Savings Pot)

What are the long term effects of Two Pot?

Currently, members of pension and provident funds can cash out 100% of their retirement savings when they change jobs, and we know that most people do this. This is one of the primary reasons members do not have sufficient money at retirement. In the new system, only one-third of your savings will be accessible. Two-thirds of your savings, allocated to your retirement will not be accessible until retirement. We believe this change will result in members achieving better retirement outcomes in the long term.

In addition, the Two-Pot Retirement system provides a solution for South Africans who struggle financially due to a lack of “rainy day” funds. The system allows for a portion of retirement savings to be accessed in real emergencies while promoting the preservation of most of the savings until retirement.

Can I make a lump sum deposit into the retirement pot?

Yes, you are allowed to make lump sum deposits, however you cannot direct funds to a specific pot only. One-third will always be allocated to your Savings Pot and two-thirds will always be allocated to your Retirement Pot. Both pots are invested the same way.

Will the money in my Savings Pot earn interest?

Yes, the money in your Savings Pot will remain invested.

What happens if I choose to not withdraw any of my retirement savings?

The money in your Savings Pot is meant for emergencies. If you choose not to withdraw your Savings Pot money it will continue to grow. You can then withdraw it as cash (you will have to pay tax and fees) when you reach retirement age.

Will the one third Savings Pot contributions still be tax deductible for income tax?

Yes – the full contribution (one third Savings Pot and two thirds Retirement Pot) is tax deductible.

How does the Savings Pot payout at retirement?

The Savings Pot will be similar to the one third amount you can access as cash when you retire. You can withdraw all your Savings Pot money at retirement. Tax rules will apply.

If I withdraw from my Savings Pot before retirement, will I still be able to access my R550 000 tax free at retirement?

Under the current legislation, any withdrawals on exit taken in cash accumulate to your tax free portion at retirement. However, this changes in the new system with Savings Pot withdrawals. Savings Pot withdrawals are taxed under a different system as it is seen as taxable income. When you withdraw from your Savings Pot you pay tax at your marginal rate. It doesn’t form part of your R550 000 tax free at retirement. Members who continue to access their savings pot during their working lifetime will still be able to access the retirement tax free lump sum of R550 000.

Will SARS have the opportunity to withdraw outstanding taxes from the withdrawal amount?

SARS will require a customer to pay any additional outstanding taxes (referred to as an IT88). These outstanding taxes include outstanding administrative penalties and arrear assessed tax owing to SARS. Old Mutual is required to act on any instruction from SARS to pay outstanding taxes and/or penalties before paying the balance.

What happens in the event of a divorce?

Divorce orders can currently be applied against a member’s retirement savings and this does not change in the new Two Pot world. The claim will be effected pro-rata across all of the member’s pots.

When may I NOT be able to access my Savings Pot?

A member may not be able to access their Savings Pot under the following situations:

1. They have already accessed their Savings Pot in that particular tax year
2. The member or the non-member spouse have notified Old Mutual that they have instituted divorce proceedings and therefore the member’s Savings Pot has been frozen
3. They have less than R2 000 in their Savings Pot.

How will implementing the Two-Pot Retirement system impact the regulatory environment, particularly around the Government Employees Pension Fund (GEPF) and Regulation 28?

This new system will affect all types of retirement funds – i.e., pension, provident, retirement annuity, and preservation funds. Provident fund members over 55 years old on 1 September 2024 can continue with the old system or adopt the new one. Regulation 28 is not being changed. Regulation 28 of the Pension Funds Act sets limits to where people should invest their retirement savings. It makes sure that you invest in different assets or types of assets so that you don’t take unnecessary investment risks.

How often will I be able to access my funds?

Under the Two-Pot Retirement system, withdrawals from the savings pot can be made only once per year of tax assessment (between 1 March and 28 February yearly). There will be a minimum withdrawal amount of R2 000 before costs and tax but no maximum withdrawal amount. It is, however, important to note that if you do not access it, it continues to build up over time, and any unused Savings Pot balance will be your lump sum benefit at retirement.

How will I be able to access my funds?

Retirement fund members must apply directly to their Fund. Further details on the Old Mutual claims process will be shared as we get closer to the effective date. When accessing your savings pot, you must consider the following:

• A minimum of R2 000 or 10% of your savings in the vested component can be withdrawn; capped at R30 000. If you have less than R2 000 in the savings pot, you cannot withdraw.
• You can only withdraw once per tax year, i.e., between 1 March and 28 February each year.
• There is no maximum withdrawal amount.
• You will be charged an administration fee for the withdrawal, which will be deducted from the amount you want to withdraw.
• You will pay tax on the savings pot withdrawal benefit based on your individual marginal tax rate as supplied by SARS.
• In a pension or provident fund, on resignation, you can only cash out your savings pot if it is less than R2 000 or you have not already accessed your one withdrawal per tax year. Otherwise, you will be required to preserve this benefit in the same way you will preserve your retirement pot benefit.