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The Two-Pot Retirement System: Understanding the Changes and How They Affect You

Effective 1 September 2024, the Two-Pot Retirement System will change how you manage your retirement savings. This system is designed to do the following:

  1. Provide both flexibility and security.
  2. Help you save more for retirement, preserve your savings, and improve your retirement planning.
  3. Safeguards your retirement assets from being accessed prematurely or lost due to financial difficulties.
  4. The savings component allows you to withdraw a portion of your retirement money once a year, reducing the need to leave your current work.


Understanding the Two-Pot Retirement System

From 1 September 2024, your retirement fund will be divided into three components:

Vested Component

The vested component includes all retirement savings made before 1 September 2024 plus investment growth on this balance in the future. This component remains under the existing rules. When you leave your employer, you have the option to:

  1. Leave your money in the Fund.
  2. Take your money in cash.
  3. Transfer the money to another fund.

Retirement Component (two-thirds of your contributions)

This component cannot be accessed before retirement. The full amount must be used to buy a pension upon retirement. From 1 September 2024, this comprises two-thirds of your contributions, investment returns accruing from 1 September 2024 and any amounts transferred into the Fund from a retirement component into another fund, accessible only at retirement, even if you change employers or withdraw from the Fund.

Savings Component (one-third of your retirement contributions)

This component allows you to withdraw a portion of your retirement money once a year without leaving your employer. It will be funded by one third of your contributions as from 1 September 2024. The initial amount (seed capital) will be transferred from your vested component on a once-off basis and can then be withdrawn as follows:

  1. The minimum withdrawal amount is R2,000 (before fees and taxes).
  2. The withdrawal amount is R30,000 (10% of your vested component or R30,000 – whichever is the lesser).
  3. Withdrawals are taxed at your marginal income tax rate.
  4. Withdrawals should be used for financial emergencies.

On 1 September 2024, you can access:


10% of the value of your share in a retirement fund (vested pot) before 1 September 2024, subject to a maximum of R30 000 whichever amount is less. It is important to note that this is a once-off event. From 2025 onwards, retirement fund members will only be able to withdraw a minimum of R2000 to a maximum of R30 000 of the accumulated fund credit post 1 September 2024.


Important Dates:


  1. 31 August 2024: MWPF will automatically transfer 10% of your retirement savings or R30,000, whichever is less, to your Savings Component.
  2. 1 September 2024: The two-pot retirement system takes effect, and no further contributions will be made to your Vested Component.

Example:


Let's say you have R300,000 in your retirement savings on 31 August 2024, and your monthly net retirement contribution is R1,200.

  1. Before 01 September 2024: Your entire R300,000 would be considered your Vested Component. You could withdraw this amount if you left your employer.
  2. After 01 September 2024:
    1. Vested Component: R270,000 (R300,000 minus R30,000)
    2. Savings Component: R30,000 (deducted from your vested component)
    3. Retirement Component: R800 per month (two-thirds of R1,200)
    4. Savings Component: R400 per month (one-third of R1,200)

The Impact of the Two-Pot Retirement System on retirement benefit

While the two-pot retirement system provides flexibility through the savings pot, pre-retirement withdrawals can reduce the total value of the retirement benefits. The impact depends on the amount and the frequency of the withdrawals. It is crucial for members to balance their short-term financial needs with long-term retirement goals to optimise their overall retirement benefit


Members of a provident fund 55 years and over on 1 March 2021

Members who were 55 years or older on 1 March 2021 and who remained members of the Fund until 1 September 2024 can elect whether to participate in the Two-Pot Retirement System or remain as contributing members according to the pre-1 March 2021 regime. If such member does not opt intoMembers who were 55 years or older on 1 March 2021 and who remained members of the Fund until 1 September 2024 can elect whether to participate in the Two-Pot Retirement System or remain as contributing members according to the pre-1 March 2021 regime. If such member does not opt into the two-pot retirement system but transfers into another fund after 1 September 2024, then they will automatically be in the Two-Pot Retirement System.


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