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What you need to know about the new retirement savings rules

Author
NMG Benefits
Category
Date
12 March 2024
5 min read

It’s likely that you have heard of the two-pot system that will be changing the way retirement funds work. If you are a member of a pension or provident fund, a retirement annuity fund or have money in a preservation fund, the new rules will apply to you. It’s a good idea to take note of the changes, as they are significantly different from the current regime!

Why are these changes happening?

The aim with the new system is to give South Africans more control over their savings in times of financial hardship, while still allowing your money to be preserved for your retirement.

What are these two pots?

Any new retirement contributions made after 1 September 2024 will be allocated into two pots – one for “savings” and one for “retirement”.

One third of your contributions will be allocated to the savings pot and you’ll be able to access this money in an emergency. Until now, you haven’t been able to take any money from your pension or provident fund while you are working for your current employer or from your RA before age 55.

The remaining two-thirds of your contribution will be allocated to the retirement pot must be used to buy a pension when you retire.

What happens on 1 September 2024?

There will be a once-off transfer of 10% of your existing retirement savings in a pension, provident, RA or preservation fund to your savings pot as a starting value. This is capped at R30 000. After 1 September 2024, new contributions are split 1/3 and 2/3 into the savings and retirement pots.

How do you access the savings pot?

You can withdraw from your savings pot once per tax year. The tax year runs from 1 March to 28 February each year. You must withdraw a minimum of R2 000. The maximum amount you can withdraw will be the balance available in the pot.

Amounts that you withdraw are taxed at your marginal income tax rate. Its likely that the fund administrator will deduct a fee for the withdrawal.

‍It’s recommended that you only use the money in your savings pot when there is an emergency.

What happens if you leave your employer?

Obtaining a cash benefit from your retirement fund is no longer linked to leaving your employer. After 1 September 2024, if you leave your employer because you resigned, are retrenched, or dismissed, you will only be able to take a cash benefit if there is a benefit in your savings pot. If you have already been paid that benefit, the benefit in your retirement pot will not be paid to you. The new system helps you preserve 2/3’s of your retirement money until you retire.

What happens to your savings pot when you retire?

When you retire, the benefit in your retirement pot must be used to buy a pension that will provide you with a monthly income. If you have a benefit in your savings pot, you can either take this in cash or use it to buy a pension.

The new system balances the need for accessing cash when there is a need while encouraging us to have savings available when we reach retirement age.


T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

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