Retirement money invested until 31 August can still be accessed in full after September
Are you worried that, starting on September 1, you will not be able to access the money you have saved up in your pension fund? This is what you need to understand.
From 1 September, the Two-Pot Retirement Fund System kicks in.
The Two-Pot System will allow members contributing towards saving for retirement the option to make one taxable withdrawal per year from the savings pot, provided that the balance has reached a minimum threshold of R2,000. This is unlike the current law where one could access his/her retirement savings when changing jobs, or for early retirement. The withdrawal will be subject to marginal tax rate and admin fees.
Since the announcement of the Two-Pot retirement fund, there have been several myths about what would happen to the money which was saved prior to the new law kicking in.
Your retirement savings will be divided into three components - a vested, savings, and retirement component.
READ: EXPLAINER: Economist unpacks imminent two-pot retirement system
The money saved before 1 September will fall under the vested pot. The vested component is protected, meaning that it is governed by the old laws before 1 September.
The difference is that 10% of what you have saved up until 31 August will go into the Savings component, but the maximum that will be taken is R30,000. It is called the seeding amount. The rest of the 90% is what remains in the vested component.
The vested pot balances will be payable on all forms of exit and will be based on a fixed pensionable service, states the Government Employees Pension Fund (GEPF).
This means the old rules that allowed one to withdraw all the money that was saved up until 31 August (vested pot) when you leave your job still apply.
Another report by the Financial Sector Conduct Authority (FSCA) states: 'The regime in effect before 1 September 2024 will apply in respect of the vested component, which means, for example, members will still be allowed to receive that vested benefit in cash on termination of employment before retirement.
Wayne Paries, a certified financial planner of SWI says: "Whatever you accumulate after the law comes in will fall under the two pots. Whatever you accumulated before the law comes in will still pay out in terms of old rules," says Wayne Paries, a Certified Financial Planner at SWI Financial Consultants.
He explains that if you resign at a later stage after the law kicks in, you can still get paid out what you had accumulated before 1 September 2024, "as you would have had the law not come in".
Only what you start to accumulate after the law kicks in will fall under the two-pot system.
Below are illustrations from PSG on how the Two-Pot System will affect your currently invested retirement funds.
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