The rules are changing for your retirement savings but too many commentators are issuing warnings and seem to be stirring the pot.

What do you actually need to know upfront?

The introduction of the Two-Pot Retirement System will take place 1 September 2024.

For anyone feeling anxious about this deadline I would like to clear up a few points I believe are important right now. 

Clearing the air:

Firstly don’t get side-tracked by the fact that the two-pot system will actually have three-pots if you already have some retirement savings.

This is good news in that the third pot, called your VESTED pot, will ringfence all your retirement stuff up to end August 2024.

This essentially ensures that no rules are changed for you retrospectively (back-dated). You retain all your same rights on your existing stuff this way. 

Another important point is that if you have already retired none of these changes will impact you as it is all pre-retirement related. 

And if you have not yet started saving in a retirement scheme come 1 September, then you will only know the two-pot rules and will be one of the first to truly only have TWO-POTS. Congratulations. 

Business as usual:

If you are not planning to access your retirement savings there is absolutely no change for you. 

You can continue to contribute as you have been,  receiving the same tax benefits on your contributions and enjoying the benefit of all investment returns being free from tax until you retire. 

You will still be restricted in your investment mix by what is called Regulation 28. For most people, this means the annoying rule that limits you to only 45% offshore investments.

At retirement you would always have had the option of taking 1/3 of your retirement portfolio as a lumpsum and would potentially have to pay tax on this. The other 2/3 you would need to use to replace your income when you retired. (Other than provident funds pre-2021)

This remains the same.

From 1 September, all new savings will be automatically split into the 1/3 they call the SAVINGS pot and 2/3 will go into your RETIREMENT pot.

You do not have to take the money in your savings pot as a lumpsum when you retire so again no change here. 

You will have to use the Retirement Pot to provide an income to replace your salary when you retire. (Just as you do now buy buying an annuity of some sort). 

The big challenge with this change will be on the administrative side of things. Your administrative service providers having been working hard on this but there could still be some hiccoughs.  

What do you need to do before 1 September 2024?

Once again the answer is nothing. This is not something you can opt into or out of*. It has been signed into law and this is how it will be going forward. 

What if you DO intend to access your funds:

This is where things do change and it is important to familiarize yourself with the changes.

I will put together something more detailed in due course and you can send me an email if you want to receive it when completed.  

But for the time being, what you need to know is:

Only a portion of your existing retirement savings (if any) will become available to you in the savings pot.

10% of your existing savings as at 31 August 2024, capped at a maximum of R30,000, will be moved as a starting balance to your new savings pot. After that 1/3 of all new contributions will be in this pot too. 

You will be able to make one withdrawal per tax year from any money in your savings pot. (So technically you could make a withdrawal in Feb and March in the same calendar year but different ‘tax years’).

You need to have a minimum of R2000 available for you to make a withdrawal. R1999 will not be allowed. 

You will need to apply for a tax directive from SARS before your provider can process a withdrawal. 

You will need a tax number for this, so if you are not a registered tax payer, you will need to do that first. (Quite easy on e-filing by the way).

There will be a cost of withdrawals but there is no firm clarity as yet. I have heard flat admin fees of between R150 and R650 per transaction. The payment you receive will be after this fee is deducted.  If this is true, it could be a very significant portion of many peoples withdrawal. 

It seems that this process will take time as there may be a large number of people trying to withdraw funds at the inception of the new system.

So I would not count on the funds being available to you immediately come September.

I think we will learn a lot more about the practical implications only after the change has happened. There are always unintended consequences.

*With a very small exception for some older individuals.