Budget 2024: Two-pot retirement will be implemented from September 1
FROM September 1, 2024, contributions to retirement funds will be split, with one-third going into a “savings component” pot and two-thirds going into a “retirement component” pot.
The two-pot retirement reform allows pre-retirement access to a portion of one’s retirement assets in times of personal stress such as medical bills or unemployment and arose out of trade union pressure to access retirement funds during the national lockdown in 2020 when many people could not go to their place of employment due to fears that they would spread the Covid-19 virus.
The need to access savings funds is also evident in the penalties incurred by members of the public when they redeem their RSA Savings bonds before maturity.
These penalties have surged from R136 million in February 2022 to R715m in June 2023.
The two-pot system will assist retirement fund members in times of need while encouraging higher savings rates and ensuring preservation of the remainder of savings to retirement. The Treasury said it would also harmonise permissible pre-retirement withdrawals across funds.
Contributions remain tax-deductible and tax-free while growing in the fund. Retirement fund members will be able to withdraw amounts from the savings component before retirement, while the retirement component will remain protected.
Savings accumulated up to the date of implementation will not be affected, except for the initial seed capital amount. This amount will be the lower of 10% of the fund value on August 31, 2024 or R30 000, and will be transferred from accumulated retirement savings to the savings component to assist fund members who may prefer an immediate withdrawal due to a financial emergency.
This seeding will be a once-off event. If not used, it will still be available in the future.
Pre-retirement withdrawals from the savings component will be taxed at marginal rates, like all other income. However, when taxable income is lower, taxpayers will be taxed at lower rates.
Only one withdrawal may take place in a tax year, and the minimum withdrawal amount is R2 000.
The Treasury noted that the optimal option is still to preserve retirement savings as long as possible, as the amounts grow at compound rates and can attract lower tax rates. Amounts left in the savings component on retirement can be withdrawn and will be taxed according to the retirement lump sum table, which includes a tax-free lump sum of R550 000.
The reforms will be implemented through amendments contained in the Revenue Laws Amendment Bill and the Pension Fund Amendment Bill, both currently before Parliament. This will enable changes to fund rules of retirement funds.
An estimated R5 billion is likely to be raised in 2024/25 due to tax collected as fund members access once-off withdrawals due to the two-pot retirement reform.
The seed capital transfer is a once-off event, so this revenue will not flow into the following fiscal years.
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