Since the two pot system was introduced effective 1 September 2024, members of retirement funds can withdraw money from their savings pot within the fund once every tax year, if the balance in the savings pot is at least R 2 000. It’s important to understand the implications of withdrawing from your savings pot.
A reminder:
Impact on your retirement savings
If you take a withdrawal from your savings pot while you are in employment, then it will come out of the savings pot, and the pot will hold less. If you take money out of the fund in cash, it is less likely that you will have enough money to retire.
If you choose to take some of your benefit in cash, you will have to save for your retirement from the start again and you may not be able to stay on track with your long-term financial goals. It’s strongly recommended that you preserve your benefit for its original purpose – providing you with an income in your retirement.
Statistics consistently show that very few South Africans have enough money saved to provide them with the income they need in retirement and that, in many cases, this is because members have taken cash out of the fund before retirement. You will need to rely on your own savings, and especially the savings you make through your employer’s retirement fund, to support you in retirement.
Many South Africans are forced to retire earlier than they had planned, they live longer (thus need support for longer) and inflation takes its toll. If you want to maintain the same standard of living in retirement that you had when you were working, you are going to need a sizeable amount of money. Taking cash out of the fund will not help you to retire comfortably.
The effects of taking a savings withdrawal on your retirement savings
The administrator has a tool to help you assess whether you are on track to retiring comfortably. If you are considering taking a savings pot withdrawal, it’s a good idea to use the tool and see what effect the withdrawal will have on your retirement savings. You can access the tool
here - https://nmg-retirement-next.sctechnology.co.za/
In the graph above, you can see the effects on your retirement income if you take withdrawals from your savings pot, or if you take your savings withdrawal benefit if you resign and take the benefit (assuming you resign every 7 years):
Tax implications
Any amount you withdraw from your savings pot forms part of your taxable income for the tax year and will be taxed accordingly. Withdrawals from the savings pot are taxed at your marginal tax rate, which is the highest tax rate you pay on your income. Since your savings pot withdrawal is added to your income, the withdrawal can also push your earnings into a higher tax bracket, leading to even more tax being payable.
Any other tax that you owe SARS will also be deducted from any savings withdrawal benefit before you receive it. You will also pay an administration fee on the withdrawal benefit. You may therefore receive less money than you expected, if any.
Before taking a savings pot withdrawal, it’s a good idea to get advice from a registered financial adviser.
An expert adviser can help you reach your financial goals. They can help you create a roadmap so that you are able to make objective and unemotional decisions around money issues. They can also help you understand if you are on track financially and if not, how to get the most from your hard-earned money. A financial adviser should be able to help you with your overall financial planning – for example, setting a budget, choosing the types of investments that would work for you, tax and estate planning and ensuring that you are adequately insured. A financial adviser will be able to help you if you need advice or if you would like to understand the effects of taking a savings withdrawal benefit.
