Old Mutual has joined Alexforbes in expressing its concern over the misconceptions and misinformation circulating about the two-pot retirement system. Incorrect information or not understanding how the system will work could result in fund members making decisions that will be detrimental to their long-term financial well-being.
During a media briefing on 10 July, representatives of Alexforbes highlighted the areas of misunderstanding and miscommunication about the system that the financial services group frequently encounters.
Read: Dispelling misconceptions about the two-pot retirement system
Last week, FANews hosted a highly informative webinar for financial advisers on the two-pot system. One of the speakers was Michelle Acton, the chief customer officer: Corporate Employee Benefit Solutions at Old Mutual. Much of Acton’s presentation unpacked what Old Mutual has learned about people’s knowledge and understanding of the two-pot system, based on its interactions with customers and financial advisers.
Acton said the two-pot system is incredibly complex once one starts to unpack the nitty-gritty details, and very few people properly understand the intricacies of how it will work. At the same time, the number of misconceptions about the essential aspects of the system is a concern, as is what some members are expecting come 1 September.
The retirement industry and financial advisers must make a concerted effort to educate members about the basics of the two-pot system. With that mind, this is what Old Mutual has found:
-
Many people don’t know how the ‘pre-two pots world’ works
Acton said one of the approaches to explaining how the two-pot system will work is to contrast it with how the existing retirement-funding system works. The problem with this is that there is a widespread lack of understanding among members of how retirement funds work currently.
It has almost been assumed that because people are saving in retirement annuity, pension, and provident funds, they know how these funds work, but this “absolutely not” the case, she said.
Comment: When communicating with members or clients about the two-pot system, it may be necessary to explain how the current system works first instead of jumping directly into explaining how it will change. ASISA’s Smart About Money website has articles that explain, in a way most members can understand, the essential features of the retirement-funding system.
-
Members expect to receive more money than they will
Some fund members are labouring under the false impression that the two-pot system will enable them to access (without having to resign from their occupational fund) all their retirement savings or one-third of their savings.
When the two-pot system is implemented, the only money in the savings component (the starting balance) will be the seed capital transferred from the vested component. This will be 10% of a member’s accumulated savings valued on 31 August 2024, with a maximum transfer of R30 000.
The “one-third” refers to the share of a member’s contributions that will be allocated to the savings component from 1 September, while two-thirds will be allocated to the retirement component.
Comment: Members will be permitted to withdraw everything in their savings component once per tax year, subject to a minimum withdrawal of R2 000. But how much a member has available to withdraw each year will depend on the rand amount of his or her accumulated contributions, plus the investment growth on those contributions.
-
And members expect to receive their money immediately
There is not only a misconception about how much members will be able to withdraw but also when they will be able to do so. There is an expectation that because the two-pot legislation takes effect on 1 September, members will receive their money on 1 September. This is not correct, Acton said.
Members need to understand that some fund administrators may not be ready to process withdrawals by 1 September, although they can receive claims. (Furthermore, 1 September is a Sunday.)
For example, Acton said, the legislation says the calculation to seed the savings component can be done on or after 1 September. There is no cap on by when they must have done this, as long as it is backdated to 1 September. Therefore, an administrator will not be non-compliant with the legislation if it is only ready to seed the savings component in, say, two months’ time.
Old Mutual has explained in a previous communication why payouts from the savings component may be delayed. Read: Members can expect payment delays when making withdrawals from the savings pot
-
Members don’t understand how withdrawals are taxed
Pre-retirement withdrawals from the savings component will be taxed at a member’s marginal tax rate (personal income tax table applies).
Old Mutual created an online calculator that enables customers to find out how much they have in their retirement fund, how much will be in their savings component on 1 September, and how much tax they will pay on a withdrawal.
Acton said more than 50 000 people, across all income levels, have used the calculator, and the overwhelming feedback is, why is Old Mutual deducting tax? The perception is that Old Mutual is deducting the tax, not the South African Revenue Service.
Old Mutual has also found that many people do not know their marginal tax rate, or what a marginal tax rate is.
Comment: Members who want to find out how the income tax brackets work and what a marginal tax rate is may find this article useful.
-
The concept of vested rights is not understood
People believe they must resign before 1 September if they want to be able to access all their retirement savings.
This misconception arises because of the lack of understanding about the concept of vested rights and the purpose of the vested component. Acton said members need to understand the distinction between “old money, old rules” – the vested component – and “new money, new rules” – the savings and the retirement components.
Comment: The purpose of the vested component is to protect members’ rights that were in place before 1 September 2024. Members will continue to have the same rights to access their retirement benefits on resignation, retrenchment, or dismissal after 1 September as they do now. In these instances, they can still withdraw the savings in their vested component as a cash lump sum.
-
Some believe the date will change
There are still people who think the implementation date of 1 September might change. Acton said the reality is that the implementation date is set in the legislation, and it will not be moved.
Comment: As Acton pointed out, the implementation date of 1 September is built into the enabling legislation for the two-pot system, the Revenue Laws Amendment Act, 2024, which was signed into law on 1 June. Second, any suggestion at this stage to move the date will be met with a severe backlash from fund members who are desperate to make a withdrawal. National Treasury, to accommodate the industry, shifted the implementation date from 1 March to 1 September. This decision was reluctantly agreed to by the Congress of South African Trade Unions, which said it would not accept any further delays.
-
People think they must opt in, or they can opt out
Old Mutual receives enquiries from customers who believe they need to opt in into the two-pot system. The two-pot system will automatically apply to members of pension, provident, preservation, and retirement annuity (RA) funds. Essentially, every member who has not yet retired from a fund.
The only members who are automatically excluded from the two-pot system are members of provident or provident preservation funds who were 55 years or older on 1 March 2021 and have remained a member of the same fund.
These members can choose to opt into the two-pot system. They can only elect to join the system after 1 September 2024, and they have until 1 September 2025 to decide.
Currently, these members can access their entire benefit as a cash lump sum at retirement. Acton said provident fund members who can choose whether to opt in should carefully consider the implications of joining the two-pot system. Once they opt in, the decision cannot be reversed.
If they choose to opt in, the calculation for the seeding of their savings component will be based on their accumulated value in the month in which they join the two-pot system.
The two-pots legislation also provides for the exemption of “legacy” or “old-generation” RA funds.
Action said Old Mutual also receives enquiries from customers who say they don’t want to have anything to do with the two-pot system. She said in that case, members should simply leave their money alone. Their retirement savings will remain invested where they are now.
Comment: Members are not obliged to make any pre-retirement withdrawals from their savings components. They can leave all their money alone until retirement.
-
Impact of savings component withdrawals on the tax-free amount
One of the most prevalent pieces of misinformation is that pre-retirement withdrawals from the savings component will be taken into account when determining the up to R550 000 that can be withdrawn tax-free at retirement.
Acton said pre-retirement withdrawals from the savings component are included in member’s taxable income, but they do not accumulate towards the R550 000 tax-free at retirement.
(Remember, pre-retirement withdrawals are taxed at a member’s marginal tax rate, whereas at retirement, any lump-sum withdrawals from the savings component are taxed according to the retirement fund lump-sum benefits table.)
Acton said the confusion may arise because in the current system any pre-retirement withdrawals do affect the R550 000 tax-free at retirement. This will continue to apply to any pre-retirement withdrawals from the vested component once the two-pot system takes effect.
-
Concern that splitting the money will affect returns
There are members who believe that splitting their retirement savings into different components will result in their receiving a lower investment return.
Acton said Old Mutual does not see the two-pot system changing retirement investment strategies. The total amount in all the components is retirement money, and the savings component is a member’s lump sum at retirement. “It should be invested as such; it should be managed as such.”
However, there is a belief that if the money is split into different components, it will earn a lower return, but this is not the case.
-
Most people aren’t planning a spending spree
Old Mutual has asked people who say they plan to make a pre-retirement withdrawal from their savings component what they will use the money for. The overwhelming majority say they want to use it to settle debt, Acton said.
This contradicts the common perception that people want to access the money because they want to spend it recklessly. “That’s not the message we’re getting […] Maybe we’re getting the wrong message.”
Acton said many people see the two-pot system as an opportunity to settle some of their debt, which is not surprising considering the financial strain South Africans are taking.
Is not like whe will take R300000. Only R300000. Why make a big fuss
We want all i third klaar whats 30000 can d0
The initial purpose of this was to enable workers to access their pension or provident fund to assist in the time during and after COVID19 to get rid of debt. But with only R30k available less marginal tax it will not assist much.
Very true, hence I don’t understand all the fuss as if we are withdrawing R30000.
I am 61 years old when where can I get a form to option in to my oldmutual provident fund
This whole thing is not going to help indebted workers to sort out their debts. They were supposed to give workers the real 1/3 of their pension not this lousy R30 000. What do you do with R30 000 these days?
We want all i third klaar whats 30000 can do the government want to fill its coffers by taxing doubled this apartheid in disguised. Reverse whole evryone clear its day robbery
I don’t blame people who are resigning from their workplace to get their money, this whole thing of R30 000 to sort out depts is nonsense
Where on earth a party/ goverment that talks about lowering taxes can come from???we need a party that allows ppl to take real money home.. not these thieves of today
Rubbish being taxed twice on salary and again on money . Reverse this chaos and heist by unoins ang anc government .
It was better with the previous law where you knew if you resign you get all your money with no drama. This time you are not even sure if you will see the rest of your money you have worked hard for. It feels like being exploited by the government.
Tito mboweni said we can access our monies but instead they removed him and come with this two or three pots whatever they called it saying u can withdrawR2000 – R30000.. government don’t care about public servant..all they is changing ministers nd tenders looting our taxexs…so bored to hell about two pot system nd the government
What is going to happen with my remaining pension money if I die after retirement.
It is distributed to your beneficiaries according to the current system. Your beneficiaries can take the benefit in cash or as na income.
I am receiving a monthly pension payment from a Permanent Disability Provident Fund and I’m still contributing monthly payments to the fund as a deduction on my payslip. I am 57 years of age and I was 54 on 1 March 2021. Will I be eligible for the 2 pot system?
If you are contributing to the fund, you will be part of the two-pot system.
I do understand that government has tried much to make people receive enough cash to balance their credits /settle it all. But our foreign investors who own much provident funds companies has differe with the behavior and that pushed state back to agree with lower withdrawal percentage that can leave more people indebted still hanging in credit providers
I still side with congress of the people fighting for 75% of the vested fund per individual. Though provident funds companies differ and is hurting to members who was expecting to be out of credits from 1september… We are living in the unfair world leaded by those with hyenas heart
This is pure bullshit leave. Our money alone some of us don’t own houses we will buy for our kids a home and what about debts that’s a big no this two pit sistem why not give us 30%of our own money why will you the government work with our money it’s a big no for me than I take rather my money and start from scratch
Yu a right this will cause chaos once workers start to understand this nonsense fully
Why even have the two pot system if you are encouraging poeple not to withdraw and, what difference is 30k less tax gonna make. Paying of debt like your bond that you anyway gonna do on retirement would have made a meaningful difference financially, in the lives of endebted employees, but only 30k less tax, come on SA (SARS) you are the experts, how did you consult with employees, money is going to be wasted because you cant do much with 30k less tax.
Why even have the two pot system if you are encouraging poeple not to withdraw and, what difference is 30k less tax gonna make. Paying of debt like your bond that you anyway gonna do on retirement would have made a meaningful difference financially, in the lives of endebted employees, but only 30k less tax, come on SA (SARS) you are the experts, how did you consult with employees, money is going to be wasted because you cant do much with 30k less tax.
At my retirement. How many percent am I going to earn per month from my retirement pot and when is it going to kick out after my retirement age.?
Is it possible for me to continue with the old system because I don’t want to be part of the two pot retirement system.
If you are contributing to a retirement fund, you cannot choose to join or not join. It is compulsory.
I feel like this is a reset button for us to leave our current employment and new people get hired because you are forcing us to resign.
It feels like government wants us yo always be in debt,if I’m hearing this correctly it means even at my retirement stage I will never have access to a lump sum of my retirement pot which will only be paid on a monthly living basis.
I want to be clear on one thing here, “those who was members of the fund before 1 September 2024 will not be affected by this process, when they resign, retrenched or retired they can access all their money?
If you leave employment or are retrenched, you can withdraw all the money in your vested pot (the pot that contains all your retirement savings accumulated to 31 August 2024).
What is this R30 000 nonsense what can one do with it bcos it will still go through admin processes and be taxed it will leave one with something between R20 000 and R19 000 can that really help us .we have debts more than that.i I think this the plan for us to help the government generate money not helping us.
The two pot system isn’t going to assist our people at all . Instead workers will be on a worse of position when they go on pension . Imagine withdrawing the R30000 every year and when you go on pension you be left with zero and the only money you will be left with it will be the retirement money. This two pot is nothing but the idea of white monopoly capital to throw poor marginalized workers into a deep swimming pool of debts .
Unoins sell us reverse this nonsense
We want all i third klaar whats 30000 can do the government want to fill its coffers by taxing doubled this apartheid in disguised. Reverse whole evryone clear its day robbery
These insurers wasted so much time opposing the system and didn’t spend much time to educate their members.
Now time is spent fear mongering and justifying reasons for processing the payments late.
We are suffering, we want our money.
Why can’t you explain this two pots of yours in our language.
I have tried to read it several times but I don’t understand especially when talking of
_ vested component, what is that?
_ then the two pots
_ the 1/3, the 30 000 I am lost
Vested component (pot) = all the retirement savings you have built up to 31 August 2024
Savings pot = one-third of your contributions from 1 September 2024
Retirement pot = two-thirds of your contributions from 1 September 2024
R30 000 = the maximum amount that will transferred from your vested pot to your savings pot on 1 September 2024 so that you have some money in your savings pot
Let me explain with kasi English
1.vested components
Is the money you have made from they day you started working until 1 September 2024. That money you will get it if you resign, retrenchment, fired even after 1 September . Check how much you have now and that’s what you will get even after 1 September if you leave work.
2.
Is better to resign and have access to all your money, this nonsense is not going to help us rather be a cash cow to government and this insurance companies. Firstly what are we going to do with 30k minus tax. Our unions failed the workers. Now we the one who have been contributing for years won’t have access to lump sum when our fixed term contract expires. Hence people are resigning in large number. This is nonsense and it doesn’t help anyone who are intended to benefit but only the white monopoly capital
I am not happy at all for so many years I have been taxed come my retirement I am still going to be taxed actually who is falling who? The hovering is not enough with looting the tax payers money? It is really unfair and they are not taking tax payers seriously. We got lot of foreigners who are not taxed 95% got jobs and they are not taxed we South Africsns we are asking to access our own money we are given excuses and conditions to access our money truly something need to happen what is 30k still is going to be taxed here I am with debts over R200k is there a logic I what the government is responding to its ppl who a tax payers of this country? Die pope graan Dans.
Contributions to retirement funds are tax-deductible.
This is just nonsense, what will 30k do to ease our debts? How will it help? This government is thinking stupid. Kids can think better. Reverse this nonsense two pot system cause it’s not gonna help us anyway.
This is not apartheid in disguise or white supremacy. This is an African who came up with this stupid system. A rogue by any other name is still a rogue. Retirement in the past was something to look forward to. You got all your money and a civil pension. Now you not even getting your own money. Stop blaming apartheid and blame yourselves for putting the ANC in charge of this country.
I just wanted to know if I with draw 30000 of my Provident fund how much will it will be taxed because to what I understand you will be taxed before fees so how much will the fees be and is this my full amount of Provident fund money with the company’s share including or just my share ?
If you withdraw R30 000 from your savings pot before retirement, the tax will depend on your marginal tax rate, which depends on your taxable income. Please refer to the SARS tax tables: https://www.sars.gov.za/tax-rates/income-tax/rates-of-tax-for-individuals/
The fund administrator will inform you for the fee to process the transaction.
The withdrawal comes from the contribution made by you and your employer.
I perceive the big problem to be the initial seed that can be withdrawn. That it’s been capped and subject to marginal tax means that people’s options are limited when it comes to debt alleviation or the resolution of big ticket items. There are some extremely clever geriatrics that failed to secure comfort in retirement. This will address that somewhat, but also forces prudence in what the withdrawal is spent on when it happens.
Government is going to strip us naked, so if lose my job today and tommorow I’m broke and I get nothing from my provident fund until I turn 65!, I hate this country its full of crooks
If you are already retired can you also withdraw money
I am a foreign national. I have a provident fund. When I leave the country, what happens to my “old” retirement money? And what happens to the new retirement money? Will I still have access to withdrawing the lump sum (old money under the old rules)? And what becomes of the “new money” amount?
If you are not a South African resident and you leave SA on expiry of your work visa, you can withdraw all your old money as a lump sum. The same applies to your new money.
The retirment age should be 65 years for all female and male municipal workers.
It feels like women are discriminated upon when forced to resign at 63 years with less than 30 years service. Pkease look into this matter.
So if I do that R30000 withdrawal this September, how much will I be able to withdraw next year? Will it be R30000 again or it will be more or it will be less?
You will be able to withdraw whatever the total of your contributions to the savings pot (one-third of total contributions), plus investment growth, between 1 September 2024 and 1 September 2025. You don’t have to wait to 1 September next year to withdraw. Withdrawals can be made once per tax year. The tax year is from 1 March to the end of February. Therefore you can make a withdrawal between 1 September 2024 and 28 February 2025, and then another withdrawal between 1 March 2025 and the end of February 2026.
How long will it takes for the funds to be into my bank account after I made a withdrawal on 1 September 2024?
The withdrawal will first have to be processed before it is paid. The fund must verify your details and obtain a tax directive from SARS. Due to the high volume of claims expected, it may be weeks for payment to be made.
Is it a must to be in a 2pot system, or I can be able to choose not to be on the 2pot system?
Members of provident funds or provident preservation funds who were 55 years or older on 1 March 2021 and have remained a member of the same provident fund are automatically exempted from the two-pot retirement system. They can choose to opt in. All other members who are contributing to a retirement fund are automatically included in the two-pot system. You cannot choose to opt out.
Y not give us all our manies…
R30 000 is a lousy money people are facing difficult tyms(repossession of house and Cars)so imagine R30 000 won’t do them any good.
We are facing difficult times indeed
Good day
I know R 30 000 will be taxed at marginal rate
will it also affect tax on our salaries meaning will our tax bracket still increase?
Thank you
The tax on the R30 000 will not affect the tax on your salary. Bot the R30 000 and your salary comprise taxable income. Adding the R30k to your income may push you into a higher tax bracket, depending on where you sit in the tax brackets now.