Two Pot Retirement System Withdrawals To Commence In September

Advertisement

The two-pot retirement policy reform has been years in the making. Individuals can begin withdrawing money from their pensions later this year. 


Advertisement

 


Finance Minister Enoch Godongwana announced that the government's new two-pot retirement system will come into effect from 1 September 2024. The reforms will allow individuals access to a portion of their retirement savings before retirement. 

The minister made this revelation during his budget speech in Cape Town on Wednesday. 

Progress has been made on the two-pot retirement system since I last addressed you during the Medium Term Budget Policy Statement (MTBPS). Contributions to retirement funds will be split, with one-third going into a ‘savings component’ and two-thirds going into a ‘retirement component

According to the 2024 National Treasury Budget Review, contributions will 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 will not be affected, except for the initial seed capital amount

This initial seed capital, constituting the lower of 10% of the fund value on 31 August 2024, or R30,000, will be transferred from accumulated retirement savings to the savings component to assist fund members who may require an immediate withdrawal due to a financial emergency. This seeding will be a once-off event.

Pre-retirement withdrawals from the savings component will be taxed at marginal rates, like all other income. However, taxpayers will be taxed at lower rates when their taxable income is lower.

Only one withdrawal may take place in a tax year, and the minimum withdrawal amount is R2,000. The optimal option is still to preserve retirement savings as long as possible, as the amounts grow at compound rates and can attract lower tax rates

Amounts left in the savings component upon retirement can be withdrawn and will be taxed according to the retirement lump sum table, which includes a tax-free lump sum of R550,000.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 reforms will be implemented through amendments contained in the Revenue Laws Amendment Bill and the Pension Fund Amendment Bill, both currently before Parliament, enabling changes to fund rules of retirement funds.

An estimated R5 billion is likely to be raised in 2024/25 due to tax collected as fund members access once-off withdrawals due to the two-pot retirement reform. The seed capital transfer is a once-off event, so this revenue will not flow into the following fiscal years

Advertisement


Advertisement


Advertisement


Google News


Advertisement i




Advertisement m