Members of retirement funds should be aware that their fund may be unable to pay out withdrawal claims immediately when the two-pot retirement system takes effect on Sunday, 1 September, says Old Mutual.
Although the system goes live on 1 September, it does not mean funds may be able to pay out on that date because several steps need to be implemented first, said Blessing Utete, the managing executive of Old Mutual Corporate Consultants. This is primarily because the allocations to the savings component (pot) can happen only from 1 September onwards.
From 1 September, 10% of the value of a member’s retirement fund on 31 August 2024, but with a limit of R30 000, will be allocated to his or her savings component. This seeding of the savings component applies to every retirement contract or policy a member has.
Michelle Acton, Old Mutual’s retirement reform executive, said payouts from the savings component cannot be made immediately.
“Seeding calculations can only be conducted after the end of August, using the values from that month. The legislation allows for seeding calculations soon after implementation, not necessarily on that date. As a result, actual access for members will likely take place after 1 September,” Acton said.
Funds still need to do a significant amount of work to ensure they are ready for the new system.
The seeding calculation, which determines the initial amount to be allocated to the savings component, is based on the current savings in each member’s retirement account and their market value. This process could take several working days to weeks, depending on the rules set by each retirement fund.
“The two-pot system is designed to be an emergency savings vehicle, giving you that initial boost to help build your emergency savings,” Acton said. “However, if you deplete it on day one, it ceases to serve as emergency savings.”
Members can make one withdrawal from their savings component once during a tax year. There is no limit on the amount that can be withdrawn, but the minimum withdrawal is R2 000.
The South African Revenue Services (SARS) will tax these withdrawals at an individual’s marginal tax rate.
An administration fee will also be deducted before the net withdrawal amount is paid out.
Members will need to have their tax affairs in order to apply for a withdrawal, and SARS may deduct any other outstanding tax before payment is made.
All members will need to have a tax number to apply for a savings component withdrawal.
The existing withdrawal rules will apply to the rest of the money that retirement fund members have saved before 1 September 2024. In other words, they can still access that money if they leave their employer. Therefore, members do not have to resign before 1 September to access this money; it will still be accessible if they resign any time after 1 September 2024.
From 1 September, retirement fund contributions will be split one-third into the savings component and two-thirds into the retirement component.
Members cannot access the money in the retirement component until they retire, and the entire benefit must be used to buy an annuity.
Members of provident funds who were 55 or older on 1 March 2021 and who have not moved funds since then have the option to opt into the two-pot system. By default, they are excluded. If they choose not to join the two-pot system, all their future contributions will still be accessible as cash if they resign or retire.
Where and how am I supposed to apply for 1/3 from my savings pot on 1 September 2024?
You apply to your retirement fund. Call or email and say you want to make a withdrawal from your savings pot. They will send you the forms to complete.