The Fund has previously communicated on the proposals by National Treasury on early access to retirement savings and compulsory preservation.
On 29 July 2022, National Treasury and the South African Revenue Service (SARS) published for public comment the 2022 draft Revenue Laws Amendment Bill (Bill). This Bill contains proposed amendments dealing with the “two-pot” retirement system which is aimed at enabling South Africans to save for non-retirement purposes i.e., emergencies through their retirement funds, whilst preserving more savings for their retirement.
In summary, the draft bill proposes the following amendments:
A member’s fund credit/savings will be split into three pots. A “vested pot”, “savings pot” and “retirement pot”.
Vested Pot
- All the contributions and growth accumulated up to 28 February 2023 will be put into the vested pot.
- All members’ rights will be protected for the funds that they have already contributed and the vested pot will still operate under the rules that were in place before the 1 March 2023 amendments.
- Members who resign (end service before age 55) will still be able to access the value of their funds in the vested pot as a lump sum payment.
Tax Payable:
Permissible withdrawals from the vested pot will be taxed according to the withdrawal tax tables.
Savings Pot
- The savings in this pot can be accessed by the member without having to end service.
- Members can access their savings pot once in a 12- month period and can access a minimum of R2,000
- If a member does not make any withdrawal from the savings pot in a 12-month period, the funds will still be available for withdrawal after the 12-month period.
Tax Payable:
Members will be taxed on the annual withdrawals made from the savings pot. These withdrawals will be included in that year’s taxable income and taxed at marginal tax rates.
Retirement Pot
- The retirement pot is for compulsory preservation and will only be paid to the member at retirement.
- At retirement the total value in the retirement pot must be paid in the form of an annuity (monthly income)
Tax Payable:
Annuity income (monthly pension) received after retirement from the retirement pot will be included in that year’s taxable income and taxed at marginal tax rates.
Contributions will be paid into the retirement pot and savings pot from 1 march 2023.
Monthly contributions from 1 march 2023 will be split as follows:
- *SAVINGS POT: Up to a maximum of 1/3 of monthly contributions will go into the savings pot.
- RETIREMENT POT: The remaining (2/3) percentage of contributions will go into the retirement pot.
- VESTED POT: No further contributions can be made to the vested pot except for members who were 55 years or older on 1 March 2021. They can continue to contribute to the vested pot until they either leave the fund or retire.
*Members can opt that no contributions flow to the savings pot.
When will these amendments come into effect and how soon will members be able to access a portion of their retirement savings?
The closing date for public comments is 29 August 2022 after which the process for enacting the bill will be followed before it is formally introduced for parliament’s consideration.
The proposed amendments as explained above will come into effect on 1 March 2023, but National Treasury have noted that this implementation date is optimistic, as fund rules need to be changed, system changes are required to enable the administration of the two-pot system by the Fund and SARS also needs to create capacity to cater for the new pots and track withdrawals.
So, when will members be able to access a portion of their savings?
The proposal for seed finance, which will make funds immediately available in either pot is not supported by National Treasury, who in their media statement released confirmed that, while there were many public requests for immediate access to accumulated retirement funds, it would not be in the best interest of members or the stability of retirement funds to do so as funds were not designed to accommodate such a withdrawal, and it is members who will suffer if their retirement interest is diminished by large lump sum withdrawals.
The savings pot will therefore start to grow from 1 March 2023 and members will only be able to make a withdrawal from this pot once they have accumulated at least R2 000.
What to expect going forward?
As a Fund we have the responsibility of ensuring that members are educated about the reform changes and their implications. We will therefore issue detailed communication in the upcoming months to further explain and educate members on these changes and, as always, keep you informed of any new developments.
Regards,
Mr Leslie Ndawana
Principal Executive Officer.
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