On 29 July 2022, the National Treasury released the Draft Revenue Laws Amendment Bill for public comment until 29 August to introduce the “two-pot” system for retirement savings that was flagged in the National Budget.
The Revenue Laws Amendment Act was the first law approved by Parliament in 2023 and signed into law, giving effect to the new system and setting the implementation date.
Parliament approved the Pension Funds Amendment Bill in May this year. It introduces changes to the Pension Funds Act that includes funds not regulated by the Pension Funds Act in the new system. President Cyril Ramaphosa officially signed the Pension Funds Amendment Bill into law on 21 July.
- The two-pot retirement system in South Africa (to be implemented on 1 September 2024) divides retirement savings into two distinct components: the savings and the retirement pot:Savings pot: About one-third of the contributions go into this pot that is designed for short-term financial goals and emergencies. Members will be able to access a portion of these savings before retirement, if necessary, and can withdraw from it once a year (minimum withdrawal amount of R2 000) under specific conditions.
- Informal sector workers often lack coverage, and traditional family-based care for the elderly is breaking down as urbanisation increases. Therefore, this system seems to benefit the middle-income group and (again) fail the poorest of the poor.
- Keep in mind that access to the savings pot’s money has implications on both the tax that the individual pays and legal requirements during divorce proceedings. Withdrawals are subject to taxation at the individual’s marginal tax rate. Retirement fund administrators must be notified when divorce proceedings are initiated to ensure that no payments are made from the savings pot during the legal process. This ensures that the division of assets is handled correctly according to the legal requirements. Retirement Pot: The retirement component ensures that the bulk of retirement savings Z two-thirds Z remain untouched until the retirement age as stipulated by the fund. This preservation is crucial for securing long-term financial stability post-career and strictly preserved until retirement age, ensuring long-term financial security. Upon retirement, members can access these funds as a regular income stream, like a pension annuity.
The South African Revenue Service (Sars) anticipates a R5 billion revenue windfall from taxing two-pot retirement system withdrawals in the next financial year, while the government expects several South Africans to access the savings component of their retirement funds as soon as the two-pot retirement system goes live.
Making use of the government’s lifeline Z to protect the dignity of those in need and overcome financial stress Z can be understood given the high unemployment rate, excessive debt, and inflation. A wiser approach by the government should be to address the consequences and not the causes of citizens’ financial dignity. Given that less than 6% of individuals in the country can retire “without worries”, individuals should know that this “lifeline” is no quick fix for financial stress. )Dr Cecile Duvenhage is a lecturer in the Department of Economics and Finance at the University of the Free State (UFS), editor, and author.
