South Africa is set to introduce a new two-pot retirement system starting September 2024, aimed at enhancing flexibility while preserving retirement savings.
This system divides your contributions into two distinct pots: one for locked retirement savings and another for emergency access.
Frants Preis asks Gerhard le Roux from Le Roux International some of the more important questions around how this new system will impact your retirement funds.
How will my existing retirement savings be affected by the new system?
Your existing savings (vested component) remain under the old rules, while new contributions are split into the two pots: one for retirement savings and the other for annual emergency access.
It provides flexibility with emergency access while preserving retirement savings for income in retirement.
Can I transfer money from my existing retirement annuity to the emergency savings pot?
Yes, up to 10% of your vested component's value, capped at R30,000, can be transferred to the emergency savings pot initially.
What are the tax implications of transferring money to the emergency savings pot?
The transfer itself is tax-free. Taxes apply when you withdraw from the emergency savings pot.
How often can I withdraw from the emergency savings pot?
You can withdraw once per tax year, with a minimum withdrawal amount of R2,000.
What happens if I need to withdraw more than once in a tax year from the emergency savings pot?
Additional withdrawals in the same tax year are not allowed, so plan withdrawals carefully.
Can I change my mind after transferring funds to the emergency savings pot?
No, the transfer is a one-time opportunity at the start of the new system.
What happens to my retirement savings if I’m already retired or nearing retirement?
Your existing savings (vested component) continue under the old rules, ensuring continuity.
Can I take my retirement savings pot as a lump sum at retirement?
No, it must be used to purchase a retirement income product, unless it’s below the prescribed minimum.
How will the new system affect my retirement fund contributions?
Two-thirds of your contributions from September 2024 go to the retirement savings pot; one-third goes to the emergency savings pot.
Can I opt out of the new system if I don’t want these changes?
No, all retirement funds will transition to the new system, but there are special considerations for certain provident fund members.
What happens if I’m already in a provident fund and over 55 years old?
You can choose to remain under the old system or opt into the new two-pot system.
Will my investment choices within the retirement annuity change because of the new system?
Your investment choices within the retirement annuity may be impacted by the focus on income generation versus emergency accessibility.
What happens if I change jobs or employers after the new system starts?
Your retirement savings continue under the new rules; consider rollover options carefully.
Can I still take a portion of my retirement savings as a lump sum at retirement?
Yes, your vested component and emergency savings pot can generally be taken as a lump sum at retirement.
Gerhard le Roux is the Managing Director of Le Roux International.
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