TWO-POT RETIREMENT SYSTEM

Dear Client

Welcome to our July 2024 edition of FC Viewpoint.

IN THE NEWS:

  • The JSE All Share Index is on 81 319 as of Thursday 12 July 2024. This is 5.6% higher than last month.
  • 1 US Dollar will cost you R17.98; 1 Pound = R23.21 and 1 Euro = R19.53.
  • Annual consumer inflation (CPI) is at 2%.
  • The prime lending rate in SA is 75% per annum.
  • The price of Oil is $83 per barrel.

THIS MONTH’S TOPIC: TWO-POT RETIREMENT SYSTEM

Why is government implementing the two-pot system?

  • To encourage pre-retirement preservation and prevent members from accessing their retirement fund benefits when they leave employment.
  • To give retirement fund members access to a part of their retirement fund benefits in case of emergencies or financial hardship.

How the current system works:

BEFORE RETIREMENTAFTER RETIREMENT
• Retirement Annuity – no access
• Preservation Fund – One withdrawal before retirement
• Taxed according to the tax table for withdrawal lump sum benefits
• Vested benefit – total benefit may be taken as a lump sum (provident fund benefit before 1 March 2021)
• Non-vested benefit – up to one third of benefit may be taken as lump sum
• Balanced must be used to purchase an annuity income product
• Taxed according to tax table for retirement lump sum benefits

Two-pot System – 3 Components

VESTEDSAVINGSRETIREMENT
• Benefit in the fund as at 31 August 2024.
• Current rules continue to apply
• Opening balance: 10% of vested component or R30 000, whichever is the lesser.
• 1/3 of contributions made from 1 September 2024. 		• 2/3 of contributions made from 1 September 2024
Before retirement:
– One withdrawal per contract per tax year.
– Minimum withdrawal amount is R2000 gross (before fees and tax)
– Taxed at member’s marginal tax rate.		Before retirement
– May access on cessation of South African tax residency for three consecutive years or visa expiry.
– Taxed according to the tax table for withdrawal lump sum benefits.
At retirement
– Can take everything as a lump sum
– Taxed according to the tax table for retirement lump sum benefits
At retirement
– Must use everything to purchase one or more annuities, as long as each annuity’s start value is R165 000 or more.

TO CONCLUDE

Even though the two-pot system might seem to offer you a cash flow solution in the short term, the long-term implications are far-reaching. For every withdrawal, there will be tax implications.

Once you retire, SARS will consider what you have withdrawn from your retirement funds throughout your life and add it to your retirement withdrawal. Your total sum will be taxed at the current retirement rate. You will also be left with less money to retire with.

We would like to encourage you to preserve your retirement funds for as long as possible and if you need to discuss or adjust your retirement goals, please feel free to contact us or set up a meeting.

Wealth regards,

Fanie Jansen Van Vuuren CA (SA), CFP®

Director: FC Wealth and Investments (Pty) Ltd

E: [email protected]  |  T: 083 384 5868

W: www.fcfin.co.za

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