By Lee-Yandra Paulsen
Following President Cyril Ramaphosa’s signing of the Pension Fund Amendment Bill into law, financial experts are urging citizens to avoid prematurely withdrawing their retirement funds. As economic pressures rise, the temptation to access these savings grows.
Speaking to VOC Breakfast on Tuesday, Commsure Financial Solutions’ Retirement Specialist, Patrick Odendal explained the two-pot system: “There is a lot of misunderstanding about the two-pot system. Essentially, from 1st September 2024, if you belong to a retirement fund, your contributions will be split into two components. One third of your net contributions will go into a savings component, and two thirds will go into a retirement component.”
He added that for those who are already members of a retirement fund, there will be an additional vested component. This will be the money accumulated in the fund up until 31st August 2024. “For those of us who belong to a retirement fund now, we will actually have three pots and not two. So, the two-pot system will only apply to people joining a retirement fund from 1st September.”
Odendal elaborated on the savings component of the two-pot system: “With your savings component, one third of your contributions will be channelled into it, and you will be allowed to access it while you are still working. There are rules, and they are trying to discourage access except for real emergencies. Although there are no actual restrictions, this savings is for genuine emergencies you might face.”
“Your retirement fund is not a savings account to buy a new TV or washing machine. These are savings that you should access at retirement when you are too old to work and cannot earn a salary.”
Odendal highlighted the importance of long-term security: “Any access to your retirement funds now will only worsen your retirement prospects. Already, only about 6% of the South African population retire with enough money. What we mean by that is only about 6% of South Africans retire with a pension equivalent to more than 75% of the salary they earned just before retirement.”
Odendal stressed that touching your retirement funds while still working should be discouraged and should be a last resort. “In South Africa, we don’t really have a social security net, and most of us use our retirement fund as our social security net in case we lose our job or in case something happens. This is the dilemma the two-pot system wants to prevent. The two thirds that are channelled into the retirement component can only be accessed upon retirement.”
Odendal concluded by advising, “Before you make a decision on this, speak to an accredited financial advisor. The tax on the withdrawal you are entitled to in the savings component is prohibitive. If you earn less than R20,000, the tax will be 18%. If you earn between R20,000 and R30,000, the tax will be 26%. If you earn between R30,000 and R40,000, the tax will be 30%. After the tax deduction, there will be a transaction fee of a couple of hundred rand. Additionally, if you owe SARS money, SARS will deduct that from the benefit. So, think very carefully before deciding to take money out of your retirement fund.”
VOC News
Photo: Pixabay
