President Cyril Ramaphosa recently signed the Pension Funds Amendment Bill into law, ushering in a significant change to how retirement savings are managed in South Africa.
Here are five key points to understand about the newly introduced two-pot retirement system:
What is the two-pot retirement structure?
The new law creates a system where retirement savings are split into two “pots”.
A savings pot which is accessible before retirement. People who choose to go for a payout on the savings option will pay tax on it. Then there is the retirement pot which can only be accessed when one retires, and it will be paid out as a regular income (like a pension).
About one-third of contributions will be allocated to the savings pot. Members can access these funds at any time before retirement, under specific conditions. Withdrawals are limited to once per year after assessment, with a minimum withdrawal amount set at R2,000. However, withdrawals from this component will be subject to taxation at the individual's marginal tax rate.
The remaining two-thirds of contributions will be directed to the retirement pot. These funds are strictly preserved until retirement age, ensuring long-term financial security. On retirement, members can access these funds in the form of a regular income stream, resembling a pension annuity.
How will this be implemented?
The law will be implemented on September 1, 2024. This date marks the official start of the two-pot retirement system.
How and when can these “pots” be accessed?
Members can access funds from the savings component in emergencies and in the case of the occasional need for immediate financial relief.
What are the benefits of these “pots”?
The retirement component ensures that the bulk of retirement savings remain untouched until retirement age. This preservation is crucial for securing long-term financial stability post-career.
What are the government objectives and economic impacts?
According to the presidency, this reform aligns with broader economic goals of reducing financial vulnerability and enhancing financial dignity for South Africans. The new system aims to balance immediate financial needs with the long-term security of retirement savings, particularly in the context of economic challenges such as those worsened by the Covid-19 pandemic.
“While we are continuing the task of growing our economy to create more opportunities for all South Africans and reduce the financial vulnerability affecting many individuals and households, the new retirement system offers protection and dignity to those who need it the most to overcome financial stress,” said Ramaphosa.
TimesLIVE
Five things you need to know about the 'two-pot' retirement system recently signed into law
President Cyril Ramaphosa recently signed the Pension Funds Amendment Bill into law, ushering in a significant change to how retirement savings are managed in South Africa.
Here are five key points to understand about the newly introduced two-pot retirement system:
What is the two-pot retirement structure?
The new law creates a system where retirement savings are split into two “pots”.
A savings pot which is accessible before retirement. People who choose to go for a payout on the savings option will pay tax on it. Then there is the retirement pot which can only be accessed when one retires, and it will be paid out as a regular income (like a pension).
About one-third of contributions will be allocated to the savings pot. Members can access these funds at any time before retirement, under specific conditions. Withdrawals are limited to once per year after assessment, with a minimum withdrawal amount set at R2,000. However, withdrawals from this component will be subject to taxation at the individual's marginal tax rate.
The remaining two-thirds of contributions will be directed to the retirement pot. These funds are strictly preserved until retirement age, ensuring long-term financial security. On retirement, members can access these funds in the form of a regular income stream, resembling a pension annuity.
How will this be implemented?
The law will be implemented on September 1, 2024. This date marks the official start of the two-pot retirement system.
How and when can these “pots” be accessed?
Members can access funds from the savings component in emergencies and in the case of the occasional need for immediate financial relief.
What are the benefits of these “pots”?
The retirement component ensures that the bulk of retirement savings remain untouched until retirement age. This preservation is crucial for securing long-term financial stability post-career.
What are the government objectives and economic impacts?
According to the presidency, this reform aligns with broader economic goals of reducing financial vulnerability and enhancing financial dignity for South Africans. The new system aims to balance immediate financial needs with the long-term security of retirement savings, particularly in the context of economic challenges such as those worsened by the Covid-19 pandemic.
“While we are continuing the task of growing our economy to create more opportunities for all South Africans and reduce the financial vulnerability affecting many individuals and households, the new retirement system offers protection and dignity to those who need it the most to overcome financial stress,” said Ramaphosa.
TimesLIVE
MORE: