On 29 July 2022, National Treasury launched the 2022 Draft Revenue Laws Amendment Bill for public remark till 29 August 2022 to introduce the ‘two-pot’ system for retirement savings that was flagged in the National Budget.
Read: Two-pot system won’t make any pension savings instantly accessible
The two-pot system would enable members of retirement funds to entry one-third of their pension savings every year, in the occasion of an emergency, whereas preserving the different two-thirds for retirement. This is thought to be a greater different to individuals resigning their jobs to entry their pensions or provident funds.
The deliberate implementation date is 1 March 2023, though Treasury stated it was in all probability optimistic, given the needed adjustments to fund guidelines and methods and training of members.
Below we record the ‘top ten’ points of how the two-pot system is envisaged, in keeping with the draft laws. In observe, members of longer standing in retirement funds may have three pots: the vested pot (quantities amassed earlier than the implementation date), the savings pot (the one-third that’s accessible) and the retirement pot (the two-thirds of contributions after 1 March 2023 that should be preserved till retirement date).
- Existing members of funds wouldn’t have to re-enrol to entry the two-pot system, as current funds might be tailored to accommodate it. Each fund must overview its guidelines to take action.
- Contributions will stay deductible as much as the specified caps, however any contributions which can be greater than 27.5% of taxable revenue or R350 000 a yr can solely movement into the ‘retirement pot’
- All contributions and development which can be amassed earlier than 1 March 2023 (the vested pot) must be valued at the date instantly previous to implementation, to allow vesting of rights. The circumstances that had been connected to these contributions will stay in place.
- The ‘savings pot’ will begin to be amassed from 1 March 2023, along with the ‘retirement pot’.
- Any quantities withdrawn from the savings pot might be included in the member’s taxable revenue for that tax yr and taxed at the related marginal charge.
- Only one withdrawal from the savings pot will be made a yr, at a minimal of R2 000. All, or a part of the quantity amassed in the savings pot as much as the allowable withdrawal date every year will be taken out.
- On reaching retirement age, the member can add the savings pot to the retirement pot to buy an annuity or can withdraw the full quantity in the savings pot as money, which might be taxed in keeping with the retirement lump sum tables. The lump sum tables have extra beneficial tax charges (most of 36%) relative to the marginal charge tables that apply to annual withdrawals pre-retirement from the savings pot (most of 45%).
- On retirement, the whole quantity in the retirement pot should be used to buy an annuity. The minimal quantity that can be utilized to buy an annuity is R165 000, quantities lower than R165 000 in the retirement pot will be withdrawn as a lump sum.
- Before retirement, it’s nonetheless doable for a member to withdraw funds from the vested pot, and, as earlier than, this withdrawal might be taxed in keeping with the retirement lump sum tables.
- Although no quantities will be transferred out of the retirement pot, transfers will be made into it from different pots (vesting, savings or retirement). No transfers will be made into the savings pot, except from different savings pots. The retirement pot and the savings pot should be held in the similar retirement fund (e.g., you can not maintain the savings pot in your outdated employer’s fund and the retirement pot in your new employer’s fund).
Joon Chong, Partner from Webber Wentzel.
Listen: John Anderson, head of investments, merchandise and enablement at Alexforbes, on how the new two-pot pension system guidelines will influence you
