FIFTY-EIGHT OR OLDER? THIS IS HOW YOU WILL BE IMPACTED BY THE TWO-POT SYSTEM
We have previously reported on the Two-pot system, what it is and when it will be implemented. Let’s look at it from a more practical point of view.
It is important to realise that although the two-pot regime will apply to pension funds, provident funds, pension preservation funds, provident preservation funds and retirement annuity funds, not all retirement fund members will automatically be included in the two-pot regime.
In terms of legislation,
- members of provident and provident preservation funds,
- who were older than 55 on 1 March 2021, and
- who are still members of the same provident fund or
provident preservation fund, will by default be excluded from the two-pot regime.
Provident Fund
Provident fund members in this category will be able to
continue contributing to their existing provident fund ‘vested benefits’. The old rules governing their retirement fund
benefits will continue to apply. After 1 September 2024,
contributions will not be allocated to a Savings component or Retirement component.
Provident Preservation Fund
For provident preservation fund members in this category, who aren’t permitted to make new contributions to the preservation fund, their existing benefits plus growth will continue to form part of their provident fund ‘vested benefits’.
Vested benefits
Members with provident fund ‘vested benefits’ will not be forced to purchase an annuity with any portion of the vested benefits when they retire from the retirement fund
(For example, the 1/3 maximum lump sum rule at retirement does not apply to them).
When retiring, these members have the option to:
- take their full vested benefit as a lump sum (taxed according to the retirement tax table),
- take any portion of the benefit as a lump sum (taxed according to the retirement tax table) and purchase a compulsory annuity with the balance, or
- use the full benefit to purchase a compulsory annuity.
These excluded members will however have the option of electing to participate/opting into the two-pot regime should they wish, by submitting an instruction to the applicable provident fund or provident preservation fund.
Important: If a member transferred from one fund to another between 1 March 2021 and 1 September 2024, for example from a provident fund to a provident preservation fund, or from one provident preservation fund to another provident preservation fund, they will not be excluded, and the two-pot regime will apply to them automatically, regardless of their age.
Electing to participate in the two-pot regime
These excluded members have the right to opt in to become subject to the two-pot regime, but to do so they must submit their instruction in writing to the retirement fund within 12 months of the effective date – therefore before 1 September 2025. If a member has more than one contract in the specific fund which is excluded from the two-pot regime, an opt-in instruction must be submitted separately for each contract they wish to be included.
Please note that an instruction to opt into the two-pot regime is final and cannot be reversed.
SARS has recently released a Two-Pot Retirement System calculator. You can find it here:
https://tools.sars.gov.za/sarsonlinequery/Savings-Pot-Calculator
For the second half of this article, please visit our website, www.thepost.org.za, or www.ninetyone.co.za. Also available for download on our website is the National Treasury FAQs shown above.