National Treasury is anticipating a tax windfall of about R5 billion when the two-pot retirement system is introduced on 1 September this year.
The two-pot system will fund members to access a portion of their retirement assets before retirement without having to resign.
From 1 September 2024, contributions to retirement funds will be split, with one-third going into a savings component and two-thirds into a retirement component.
Contributions remain tax deductible and tax-free while growing in the fund.
Retirement fund members will be able to withdraw amounts from the savings component before retirement, while the retirement component will remain protected.
Savings accumulated up to the date of implementation of the two-pot system will not be affected.
Retirement funds will have to transfer from a member’s accumulated retirement savings an initial seed capital to the savings component. The amount will be 10% of the member’s fund value on 31 August 2024, capped at R30 000, and can be withdrawn immediately.
This seeding will be a once-off event. If not used, it will be available in the future.
Pre-retirement withdrawals from the savings component will be taxed at marginal rates, like all other income. However, when taxable income is lower, taxpayers will be taxed at lower rates.
Only one withdrawal from the savings component may take place in a tax year, and the minimum withdrawal is R2 000.
The optimal option is to preserve retirement savings as long as possible because they grow at compound rates and can attract lower tax rates.
Amounts left in the savings component on retirement can be withdrawn and will be taxed according to the retirement lump-sum table, which includes a tax-free lump sum of R550 000.
The Budget Review says about R5bn is likely to be raised in 2024/25 due to tax collected as fund members access the once-off withdrawals from their savings component. The seed capital transfer is a once-off event, so this revenue will not flow into the following fiscal years.
The National Assembly passed the Revenue Laws Amendment Bill, the key enabling legislation for the two-pot system, during its plenary sitting on 20 February 2024.
