Dear valued member

National Treasury and SARS provided feedback at the Standing Committee on Finance as part of the parliamentary process following workshops and public consultations about the proposed two-pot system, which will allow for early access to retirement savings and compulsory preservation.

The following proposed changes are based on the feedback provided by National Treasury to the parliamentary committee:

Implementation date to be moved to 1 March 2025. National Treasury is proposing that the implementation date be changed from 1 March 2024 to 1 March 2025. This means that members will only be able to access a portion of their savings through the seed capital that will be made available from the 1st of March 2025.

Seed capital amount increased. National Treasury has also proposed increasing the maximum amount that members can access when the two-pot system comes into effect, from the initial R25 000 to R30 000. The new proposal for seed capital is 10% of a member’s retirement savings value on 28 February 2025, limited to a maximum of R30 000. AS AN EXAMPLE:

Any withdrawals made from the savings component after 1 March 2025, will be taxed at members’ marginal tax rates if it is withdrawn before retirement. National Treasury is proposing a withholding tax process, instead of Retirement Funds having to apply for a tax directive for withdrawals made from the savings component. The withdrawal amount will be added to the member’s annual income at the end of the tax year, potentially resulting in the member’s tax bracket shifting to a higher bracket which means you may end up with a higher tax amount to pay.

The two-pot system will not automatically apply to provident fund members who were 55 and older on 1 March 2021. These members will have a choice to opt into the two-pot system.

It is important for members to note that:

• The maximum amount that will be made available as seed capital on 1 March 2025 for a member to withdraw is the lesser of R30 000 or 10% of the members savings as at 28 February 2025. Thereafter, only one withdrawal from the savings pot can be made per year, with a minimum withdrawal amount of R2 000. All or part of the amount accumulated in the savings pot up to the allowable withdrawal date can be accessed each year.
• Any withdrawal from the savings pot will be taxed at the member’s marginal tax rate, if accessed before retirement.
• Withdrawing money from your retirement savings will have a negative financial impact at retirement. The more money you withdraw, the lesser the benefit payable at retirement.
• Accessing your retirement savings has far-reaching consequences and should therefore be a last resort. Members should always consult with a qualified financial advisor when making such important financial decisions. The NFMW is available to assist members in this regard. Please see the link below for the contact information of an NFMW-accredited financial advisor.

We reiterate the importance/power of the compound effect on the accumulated benefit which is severely diminished when you withdraw a portion of your retirement savings and encourage you to prioritise your future financial security over your present needs.

Final legislation has not been issued and parliamentary approval is still required before the two-pot system is implemented. We will, as always, ensure that you are updated on any new developments.