Member Newsletter
Quarter 4 • 2023
Dear Member
The proposed two-pot retirement system allows you to dip into part of your retirement savings while you are still working. This is however only if you have an emergency. Here we recap some of the important points of this new system. It is uncertain when exactly the two-pot system may come into effect, but remember that you cannot access your money before the effective date.
We also tell you more about Additional Voluntary Contributions (AVCs). This is a way of increasing your retirement savings by putting a little extra money aside monthly or as a once-off.
In this newsletter we explain the Balanced Growth Portfolio and why it is important to set your sights on the long term when looking at the investment performance of your retirement savings.
THE TWO-POT RETIREMENT SYSTEM
THE PROPOSED TWO-POT SYSTEM MAY COME INTO EFFECT BETWEEN 1 MARCH 2024 AND 1 MARCH 2025. EXACTLY WHEN IS UNCERTAIN AT THE MOMENT.
LET'S RECAP THE IMPORTANT THINGS
The two-pot retirement system will allow members to access up to one-third of their retirement savings in the event of an emergency. The other two-thirds will be preserved for retirement.
1
What are the two pots?
All your future retirement contributions will be allocated as follows:
- SAVINGS POT – Up to one-third of all your contributions will be allocated to this pot.
- RETIREMENT POT – At least two-thirds of all your contributions will be allocated to this pot.
You may transfer from your savings pot into your retirement pot, but may not transfer out of your retirement pot.
When you retire, you must use the total amount in your retirement pot to purchase an annuity. An annuity is commonly used to provide a steady income stream during your retirement. The more you have saved in your retirement pot, the higher your annuity.
2
Why the two-pot system?
Currently, you have no access to the money you have saved in your retirement fund, unless you resign. However, most members access all their retirement savings when they resign, leaving them with insufficient retirement savings. The two-pot system is a better solution as it aims to address long-term financial security and short-term financial relief for all members.
3
Access to your retirement savings
Final legislation is still required, but based on draft legislation it seems likely that 10% of your retirement savings, limited to a maximum of R30 000, will be transferred to your savings pot when the two-pot system comes into effect. You wil be allowed to access this, but probably only once a year.
You cannot access your money before the effective date.
4
How will the amounts I withdraw be taxed?
Any amounts withdrawn from your savings pot will be taxed at your marginal tax rate.
5
Should I access the money in my savings pot?
Currently, if you have a short-term financial emergency, it is not possible to withdraw money from your retirement savings without resigning.
There are two issues with this:
1
You might resign with the risk that you may not soon find new employment. This places you in a worse financial predicament.2
Often the temptation is too great and you withdraw more than you require. This leaves you with less retirement savings when you retire.
The proposed two-pot system addresses these two issues.
However, access to a portion of your retirement savings should only be used in real emergency situations.
Ideally, you should plan for all financial situations. Saving enough money to enjoy your retirement remains a challenge and accessing your savings pot before retirement will negatively affect your retirement.
6
Get financial advice
We encourage you to seek financial advice from a qualified financial adviser.
Consider this now and not only when you are in financial difficulty.
7
In summary
- Is the two-pot system effective yet? No.
- Do we have all the details yet? No.
- Will members be informed once it is effective? Yes.
- Should I panic or stress about these changes? Should I resign before this comes into effect? Absolutely not.
- Should I consider accessing my retirement savings just because I can? Absolutely not.