The implementation (currently 1 September 2024 is the proposed date) and finer details of the two-pot retirement system have yet to be finalised by Parliament. It is still subject to change but here are some answers to your most pressing questions.
1 What are the tax implications if I withdraw from the savings pot?
You will be taxed on the amount you withdraw from the savings pot every year. The amount will be added to your other taxable income and the tax payable will depend on the SARS tax rate that applies to that income band, i.e. the member’s marginal tax rate. At the end of the tax year after your SARS assessment any excess tax will be refunded or additional tax might be due. Industry experts warn that the additional income from the savings pot could push an individual into a higher tax bracket or over the tax threshold for the first time.
Let’s explain:
Kgomotso is 27 years old and earns R7 900 per month.. His taxable income of R94 800 per year is just under the government’s R95 750 tax threshold, which means he doesn’t have to pay tax. His payslip also does not include a deduction for PAYE tax.
He opts to withdraw R5 000 from his savings pot in September. This pushes his taxable income to R99 800 and he is now no longer under the tax threshold referred to above. He is liable for 18% tax on the difference of R4 050, which comes to R729. Once he files his tax return in July of the following year the R729 will appear on his payslip as a tax deduction.
2 What are the tax implications for my savings pot at retirement?
On retirement, you may take the balance in your savings pot as cash. The amount will be taxed according to the retirement lump-sum tax table, and not at your marginal tax rate. If you do not take any money from your savings pot before you retire, you could potentially get an amount of up to R550 000 tax-free from that pot.
3 What if I belong to a defined-benefit fund (DB fund)?
The current proposal is that, from September 2024, DB funds calculate the contribution to the savings pot based on one third of your pensionable service (i.e. number of years worked), and the contribution to the retirement pot based on two thirds thereof.
Or another method approved by the FSCA.
Let’s explain:
Mandla has been in service for two-and-a-half years (30 months) and his retirement contribution is valued at R150 000. The fund seeds his savings pot with R15 000, which is 10% of his benefit. The fund will reduce the member’s pensionable service by 10% to compensate for the withdrawal. The pensionable service date will be moved forward by three months (10% of 30 months) to achieve this.
4 What happens to my pots if I move to another retirement fund?
The pots cannot be separated and are one account in your name. When you resign or move your account, you cannot separate the pots. You will have to move your entire account (all three pots) to the new fund.
5 Can I access any savings if I am retrenched?
If you are retrenched, you can withdraw all the funds in your vested pot and savings pot, provided that you have not already made a withdrawal. Legislation dealing with withdrawals from the retirement pot will be finalised in the second phase of the two-pot system. For now, if you are retrenched, you will not be able to take any money from your retirement pot.
6 What happens if I emigrate?
In general, you are allowed to withdraw from the vested, savings and retirement pot subject to the three-year rule – you must have been non-resident for a minimum of three years. The vested pot will then be taxed in accordance with the pre- two-pot tax provisions, the savings pot will be included in your taxable income, and the retirement pot will be taxed according to the lump sum withdrawal tables.
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