There’s a buzz in the air about a new retirement system that’s about to change the way South Africans manage their pension funds. It’s called the two-pot retirement system, and it’s designed to offer both flexibility and security. But with just days left for submissions, hundreds of retirement funds still need to apply for rule amendments, or else members might not be able to withdraw their funds. Let’s dive into what this all means and how it affects you.
So, What’s the Two-Pot System All About?
The two-pot system allows you to split your retirement savings into two parts: a savings pot and a retirement pot. Here’s how it works:
- Savings Pot: This component is accessible at any time for emergencies. Think of it as your rainy-day fund. One-third of your contributions after 1 September will go into this pot.
- Retirement Pot: The remaining two-thirds of your contributions will be preserved until you retire. This ensures that you have a secure financial future when you’re ready to hang up your work boots.
The Crunch Time for Pension Funds
The deadline for pension funds to submit their rule amendments to adopt the two-pot system is fast approaching—31 July to be exact. So far, only 58% of the required funds have sent in their submissions. If the remaining 40% don’t get a move on, members of these funds won’t be able to access their savings when the system goes live on 1 September.
According to Adri Messerschmidt from the Association for Savings and Investment SA (Asisa), of the 867 funds that need to make changes, hundreds still haven’t submitted their amendments for approval from the Financial Sector Conduct Authority of SA (FSCA). The FSCA has even extended the deadline from 15 July to 31 July to accommodate the backlog.
Important Dates
- 1 September 2024: The two-pot system officially kicks in. From this date, your retirement contributions will be divided into the savings and retirement pots.
- 31 July 2024: Deadline for pension funds to submit rule amendments to the FSCA. If they miss this, they won’t be able to implement the system, and you won’t be able to withdraw from your savings pot.
Why This Change?
The government introduced the two-pot system to provide financial stability and flexibility. Previously, many people would cash out their entire pension when changing jobs, leaving them with nothing for retirement. The two-pot system aims to prevent this by allowing partial withdrawals while preserving the majority of savings for retirement.
Withdrawals and Taxes
Withdrawals from the savings pot are subject to tax, so it’s crucial to plan wisely. The FSCA and South African Revenue Services are working to ensure that tax guidelines are in place by the implementation date. Remember, you can only make one withdrawal per tax year, and it must be at least R2,000.
The two-pot retirement system is a significant shift in how we handle our retirement savings. While it offers the flexibility to access funds in an emergency, it’s important to think carefully before making withdrawals. Every rand you take out now is one less rand for your future retirement.
If you’re unsure about how this affects you, it’s a good idea to speak with a financial adviser. They can help you navigate the changes and make informed decisions about your retirement savings.