Two-pot retirement system on the Traditional platform

You will be able to make a withdrawal of a minimum of R2 000 from your savings component, once every tax year, provided the amount in your savings component is R2 000 or more, if:

• your retirement annuity policy is included in the two-pot retirement system;
• you have a pension preservation policy;
• you were younger than 55 years on 1 March 2021 on your provident preservation fund policy or
• you were 55 years or older on 1 March 2021 and opted-in on your provident preservation fund policy.

Only 10% of your fund's value as of 1 September 2024, was allocated to your savings component, to a maximum of R30 000. (This means that if your fund value was less than R300 000, you will not have R30 000 available to withdraw.)

There are fees and tax on every withdrawal. The amount of tax we have to deduct, depends on the tax bracket you fall in and whether there are outstanding taxes due to SARS. We have to request a tax directive from SARS, where they will instruct us on the amount of tax we have to deduct.

For example, if the fund value as of 1 September 2024 was R180 000, only R18 000 would have been allocated to the savings component. This will initially be the maximum amount that can be withdrawn (before tax and fees). This amount can still change with investment growth. In the case of a retirement annuity where ongoing premiums are paid, we will also allocate one-third of the premiums after 1 September 2024 to the savings component. It is important to remember that we still have to deduct tax and fees from the savings component when you make a withdrawal. In this example, if the person withdraws the maximum amount of R18 000 from the savings component, the person will receive less than R18 000 in their bank account.

If a person withdraws the maximum amount in the first tax year, it will mean that for:

A preservation fund policy - nothing will be left to withdraw in the following tax years.

A retirement annuity policy - only one-third of the premiums until the next withdrawal, with growth, will be available for withdrawal in the following tax year (if it is more than the minimum withdrawal amount of R2 000).

Every withdrawal has a direct impact on your retirement savings, because it reduces the amount you will have available to retire with. You will also lose out on the future growth on the amount you are withdrawing. If the benefits of your policy is linked to the value of your fund, a withdrawal will also reduce the active benefits you have in the policy. Here is an example to demonstrate the possible results of three different scenarios:

Mrs Naidoo, Mr Smith, Ms Dlamini and Ms Mazibuko each have a retirement annuity with an existing fund value of R150 000 and 20 years until their chosen retirement date. All four of the members contribute R1 000 every month, with a 5% increase in contributions each year. They are all members of the same retirement fund and receive 10% growth per year. Ms Mazibuko, however, has a legacy retirement annuity and will therefore not be included in the two-pot retirement system.

On 1 September 2024, the seed capital was allocated to the savings components of Mrs Naidoo, Mr Smith and Ms Dlamini and the rest of their money was allocated to their vested components where it will grow with 10%, until retirement. From 1 September 2024, their contributions will be split: two-thirds will be allocated to their retirement component, which they may not use until retirement; and one-third will be allocated to their savings component, which they can access once per tax year. Ms Mazibuko will only have a vested component on- and after 1 September 2024, because her policy is not included in the two-pot system.

The table below shows the difference in the total value of the retirement savings for each of these persons at retirement age of 60.

Ms Dlamini and Ms Mazibuko have the same amount of total retirement savings, even though Ms Dlamini is included in two-pot and Ms Mazibuko is not. This is because Ms Dlamini did not make any withdrawals from her savings component.

*Note 1: All values in this document have been rounded. *Note 2: The table does not show the reduction in benefits if any benefits are linked to the value of the retirement fund. *Note 3: Individuals earning more than R240 000 a year, will pay tax at a marginal rate of between 26% and 45% on early withdrawals from their savings component. This would likely be more than the tax a person will pay if they only withdraw from the savings component when they retire. On retirement the tax rate would vary between 0% and 36%.