The Future of Retirement Savings: Unpacking South Africa's Two-Pot Retirement System

The Two-Pot Retirement System is a significant reform designed to enhance the retirement savings landscape in South Africa, scheduled for implementation on 1 September 2024. This system introduces a compulsory preservation mechanism for retirement savings, aiming to address the dual challenges of providing financial relief in times of immediate need and improving long-term retirement savings.

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Key Features of the Two-Pot Retirement System

Upon implementation, the retirement savings framework will consist of three components:

1. Vested Component: Comprises members' retirement savings accumulated up to 31 August 2024. It's important to note that the new system will not apply to these funds. However, 10% of retirement savings, up to a maximum of R30,000, will be transferred to the Savings Component as seed capital.
2. Savings Component: Starting from 1 September 2024, one-third of a member's retirement fund contributions will be allocated to this pot, excluding risk premiums and administration fees. Members will have the opportunity to make a taxable withdrawal from this pot once every tax year, providing a mechanism for financial relief.
3. Retirement Component: Also from 1 September 2024, two-thirds of a member's contributions will be directed to this pot, aimed at securing funds for retirement. Access to these funds will be restricted until retirement, at which point they must be used to purchase an annuity.‍

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‍Recent Legislative Changes

In November 2023, adjustments were made to the legislation, notably increasing the maximum amount of seed capital that can be transferred to the Savings Component from R25,000 to R30,000. Additionally, withdrawals from the Savings Component prior to retirement will be taxed at the member's marginal tax rate.

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Other Considerations

• Section 37 Deductions: Deductions from a member's retirement savings under certain conditions will be proportionately applied across all three components.
• Provisions for Provident Fund Members Over Age 55: Members aged 55 or older on 1 March 2021 are automatically excluded from the new system, with an option to opt-in.
• Investment Strategies: There will be no immediate change to investment strategies under the new system. The focus remains on achieving the best outcomes for members, with long-term investment horizons and a balance between risk and return.

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Implementation and Member Information

Efficient implementation of the Two-Pot Retirement System is dependent on accurate member information. Digital solutions are being developed to process withdrawal claims effectively, emphasising the importance of complete and accurate member data. The introduction of the Two-Pot Retirement System represents a forward-thinking approach to retirement savings, ensuring both immediate financial support and long-term security for members. As we approach the implementation date, staying informed and prepared is crucial.

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‍Your Guide Through the Changes

Whether you're concerned about the impact on your current retirement savings, the best strategy for your future contributions, or how to optimise your financial position under the new system, we can offer tailored advice that aligns with your individual goals and circumstances. Contact gabi.vanniekerk@liblink.co.za to get in touch.

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This blog post is intended for use by financial intermediaries. The information in this blog post is provided for information purposes only and should not be construed as the rendering of advice to clients. Although we have taken reasonable steps to ensure the accuracy of the information, neither Fabio Brogneri nor any of his subsidiaries accept any liability whatsoever for any direct, indirect or consequential loss arising from the use of, or reliance in any manner on the information provided in this document.