Retirement fund members who anticipate making a withdrawal from their savings component (or pot) when the two-pot retirement system takes effect on 1 September should check whether they will qualify for a withdrawal.
As of 1 September, 10% of a member’s retirement savings, up to R30 000, will be allocated to the savings component. The amount in the savings component can be withdrawn at any time if the withdrawal is R2 000 or more. If the balance in the savings component is less than R2 000, no withdrawal is allowed until that savings component grows to R2 000. This means that your fund credit must be at least R20 000 on 31 August 2024 to have the minimum amount available immediately.
Natasha Huggett-Henchie, a consulting actuary and member of the Actuarial Society of South Africa’s Retirement Matters Committee, estimates that at least 20% of the country’s retirement fund members will not have enough money in their savings component on 1 September 2024 to make a withdrawal.
Retirement fund members regularly receive benefit statements from their employers or product providers, but most do not pay these any attention until they need the money, change jobs, or retire, Huggett-Henchie said.
“Understanding how much you have already saved towards your retirement is the first step in understanding how much, if anything, you are permitted to withdraw on 1 September 2024.
“Rather than wait for 1 September 2024 and then suffer the disappointment of not having the minimum withdrawal amount of R2 000 in your savings pot, check your retirement benefit statement sooner rather than later,” she said.
Members with less than R2 000 will have to wait
The ASSA Retirement Matters Committee surveyed some of the country’s biggest retirement fund administrators and found that the average benefit of the 20% of fund members with retirement savings below R20 000 is projected to be about R9 000 on 1 September 2024. Of this R9 000, 10% (or R900) will go into the new savings component. Since at least R20 000 is required to enable the minimum withdrawal of R2 000, members who fall into this 20% category must first build up enough savings before they can access their money.
Huggett-Henchie estimates it will take the average employee in the 20% category about four to six months from 1 September 2024 to build up a savings pot of R2 000. This means they could access their savings component for the first time early in 2025.
According to Huggett-Henchie, the average monthly salary of employees who fall within 20% of retirement fund members who cannot access their savings pot is R9 417. The average net retirement contribution is about 10% a month (R942).
Starting from 1 September 2024, one-third of the monthly retirement fund contributions (R314) will go into their savings component, where R900 is already waiting, and the rest will be committed to the retirement component that cannot be accessed until retirement.
Therefore, it will take about four months for these members to have a savings component fund value above R2 000 (R900 + R314 x 4 = R2 156).
“Many retirement fund members hoping to be able to dip into their savings before the start of the holiday season at the end of the year will be left disappointed,” Huggett-Henchie said. “To avoid finding out in September this year that there is not enough money in the accessible savings pot, we urge retirement fund members to obtain their most recent benefit statements and to work out where they will be by September.”
Expect deductions
Huggett-Henchie reminds retirement fund members that their savings component withdrawals are taxed by the South African Revenue Service either at their current marginal tax rate or at a higher rate if the withdrawal pushes them into a higher tax bracket.
In addition, there will most likely be an administrative fee payable. “You will, therefore, never receive the full amount you applied for,” she said.
She said fund members must carefully weigh the pros and cons of accessing their savings component, bearing in mind that it is intended to provide relief in extreme financial distress.
“Accessing your savings pot and using the money for anything other than a serious financial emergency is reckless and costly and comes with serious financial consequences many years later when you need the money for your retirement.”
Huggett-Henchie summarised some of the most important considerations below:
- Check your retirement benefit statement to make sure you have R20 000 or more in benefits before you apply for a withdrawal from your savings component once the two-pot system kicks in after 1 September 2024. If you have at least R20 000, you will be able to withdraw R2 000.
- The withdrawal is taxable, and an administration fee will likely be deducted. Therefore, you will not receive the full withdrawal from your savings component.
- You will not be able to make a withdrawal from your savings component unless you have a tax number.
- Every time you access your savings component, you reduce the cash lump sum that you have available at retirement.
The savings component, which you will be allowed to access once every tax year after 1 September 2024, is meant to provide relief in cases of extreme financial need. Accessing under any other circumstances is a costly exercise that will also impact the size of your retirement nest egg.
So if my retirement benefit state shows R100k it means that the 100k accumulated by far is going to be R90k in the vested pot and R10k in the savings pot? Also does it means that if my salary monthly is R10k does it mean that R1k is gonna be contributed monthly leaving with approximately R11k at the end of 0ctober?
So if my retirement benefit state shows R100k it means that the 100k accumulated by far is going to be R90k in the vested pot and R10k in the savings pot? Also does it means that if my salary monthly is R10k does it mean that R1k is gonna be contributed monthly leaving with approximately R11k at the end of 0ctober? The other thing, will I still be able to can resign if I want to and access my money in the new order the same way prior these financial reform
Yes, 10% of R100k is R10k, which will go to the savings pot. The allocation to the saving and retirement pots from 1 September depends on what the agreed contribution by you and your employer is. If the total contribution is, for example, R1000 a month, one-third of that will go the savings pot and two-thirds will go the retirement pot. If you resign, you can access all the money in the vested pot (R90K on 1 September in your example) and whatever is in the savings pot. Whatever is in the retirement pot can only be accessed when you reach retirement age.