Members who anticipate making a withdrawal from their savings component (or pot) when the two-pot retirement system takes effect on 1 September should first check whether they will qualify for a withdrawal.

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As of 1 September, 10% of a member’s retirement savings, up to R30 000, will be allocated to the savings component. The amount in the savings component can be withdrawn at any time if the withdrawal is R2 000 or more.

 

If the balance in the savings component is less than R2 000, no withdrawal is allowed until that savings component grows to R2 000. This means that your fund credit must be at least R20 000 on 31 August 2024 to have the minimum amount available immediately.

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Understanding how much you have already saved towards your retirement is the first step in understanding how much, if anything, you are permitted to withdraw on 1 September 2024.  “Rather than waiting for 1 September 2024 and then suffer the disappointment of not having the minimum withdrawal amount of R2 000 in your savings pot, check your retirement benefit statement sooner rather than later

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Members with less than R2 000 will have to wait

Starting from 1 September 2024, one-third of monthly retirement fund contributions will go into the designated savings component and the rest will be committed to the retirement component that cannot be accessed until retirement.

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Expect deductions

Withdrawals from the Savings Component (Pot) will be taxed by the South African Revenue Service either at your current marginal tax rate or at a higher rate if the withdrawal pushes you into a higher tax bracket.  In addition, there will be an administrative fee payable.

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Fund members must carefully weigh the pros and cons of accessing the savings component, bearing in mind that it is intended to provide relief in extreme financial distress.

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Accessing your savings pot and using the money for anything other than a serious financial emergency is reckless and costly and comes with serious financial consequences many years later when you need the money for your retirement.

 

Some of the most important considerations below:

• Check your retirement benefit statement to make sure you have R20 000 or more in benefits before you apply for a withdrawal from your savings component once the two-pot system kicks in after 1 September 2024. If you have at least R20 000, you will be able to withdraw R2 000.

• The withdrawal is taxable, and an administration fee will be deducted. Therefore, you will not receive the full withdrawal from your savings component.

• You will not be able to make a withdrawal from your savings component unless you have a tax number.

• Every time you access your savings component, you reduce the cash lump sum that you have available at retirement.

 

The savings component, which you will be allowed to access once every tax year after 1 September 2024, is meant to provide relief in cases of extreme financial need. Accessing under any other circumstances is a costly exercise that will also impact the size of your retirement nest egg.

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Source: Natasha Huggett-Henchie, a consulting actuary and member of the Actuarial Society of South Africa’s Retirement Matters Committee

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