Uncategorized

How does the new ‘two-pot’ retirement system work?

President Cyril Ramaphosa has signed into law the Revenue Laws Amendment Bill of 2023, which establishes a ‘two-pot’ system that gives members of retirement funds access to retirement savings without having to resign or cash out entire pension funds.

The amendment law introduces a ‘two-pot’ retirement system to address the concerns related to lack of preservation before retirement and lack of access to retirement funds by households in financial distress.

What is ‘two-pot’ retirement system?

The Two-Pot Retirement System enables you to access a small portion of your retirement savings (before you retire) for emergencies.

The bulk of your savings will remain “preserved”, meaning you will have to keep the majority of your retirement savings invested until you retire.

Who is it for?

Any South African who has a pension fund, provident fund, retirement annuity, or a preservation fund.

If you have a provident fund and you were over 55 years old on 1 March 2021 you can continue with the old system or adopt the new one.

How does the ‘two-pot’ retirement system work?

From 1 September 2024, your retirement contributions will be divided into two pots:

  • A savings pot where one-third of your contributions will be allocated and which you will be able to access before retirement if required, and
  • A retirement pot, where the remaining two-thirds will be kept for funding your income in retirement. This pot will be preserved until the retirement date.

There will be a once off automatic allocation of 10% of your existing retirement savings (capped at R30 000) transferred to the “savings pot” as an opening value.

The new rules will only apply to new contributions after 1 September 2024 for Two-Pot Retirement System.

Retirement savings up to that date will be ringfenced as the “vested pot”, and the existing rules will continue to apply.

Did you know?

According to the Association for Savings and Investment South Africa (Asisa), it is estimated that 94% of South Africans are not on track to retire comfortably. 

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *