To help get your head around the new two pot system here is a breakdown of what happens to the pots. (There’s actually three of them). Basically, the provident fund which had access to 100% cash will end and all funds will take on the aspects of a pension fund where only a third is available in cash and two third has to go to a pension.

Example

Let’s use an example of a retirement fund with a value of R100 000 fund at the 31st August 2024 with a monthly contribution of R3000.

With the new two pot system for retirement starting on the 1 September 2024 here’s what will happen.

10% will be transferred to the new savings pot along with a third of the monthly contribution.

So in September the savings pot will start with R11 000. 

10% of the current funds (R10 000)

R1000 (one third of the September contribution).

Your retirement pot will have R2000 and the first pot will have R90 000.

From the 1st September you can

Leave the pots alone for retirement

The first pot (the one up to 31st August) will be have the same options as it does now. Third in cash if a pension or RA. Full cash if a provident fund. All three pots can be invested in a life or living annuity. The savings pot can be cashed. The retirement pot has to be used for a pension. 

Access the first pot if you leave your employer as you can do at the moment

Access the savings pot once a year in full or in part (minimum R2000). It will be taxed with your taxable income in that particular tax year. 

There are some exemptions to the two pot system

If you have an old legacy retirement annuity it may be exempt subject to conditions outlined by the FSCA. You will need to transfer it to a different platform to join the two pot system.. Be careful as it may impact on fees and values.

If you are a provident fund or preservation provident fund member aged 55 before the 1st March 2021 you will not be affected. You can opt to join the two pot system ‘once-off’ after the 1st September but cannot change back.

The new system will take some time to understand and use effectively. You should consult with your financial advisor before making any decisions. 

The risk is evident

Startling data from Standard Bank this week reveals that 52% of their customers earning above R25 000 per month have less than one month savings in place for emergencies and unforeseen expenses. 

Emergency Fund is crucial

An emergency fund is not just another financial cushion; it is a crucial component of a robust financial plan that provides peace of mind and security in times of uncertainty. Setting aside funds specifically for unexpected expenses and emergencies can make all the difference when life throws you a curveball.

A shield against the unforeseen

The primary importance of an emergency fund lies in its ability to shield you from financial crises. Whether it’s a sudden medical bill, a car repair, or even a job loss, having a contingency fund can help you weather the storm without derailing your long-term financial goals. In the event of a job loss, having savings to cover several months of expenses can provide a buffer, giving you time to explore new opportunities without the pressure of immediate financial strain.

Investment in peace of mind

Building an emergency fund offers a multitude of benefits, including reduced stress levels, increased financial resilience, and the ability to handle unexpected expenses without resorting to high-interest debt. By setting aside a portion of your income regularly, you are investing in your financial well-being and creating a safety net that can offer peace of mind and financial security in times of need. Start building your emergency fund today – your future self will thank you.

In the process of claiming seeded retirement funds under the two-pot system from 1st September, beneficiaries should be aware that a 10% seeding is applied to a maximum of R30,000. The new system has processes which will cause delays. 

Admin delays

When initiating the withdrawal process, beneficiaries should see the seeded amount available. Some fund administrators may not be ready to reflect this in your account on the 1st September. So one possible delay will be the admin process. The big difference will be found between funds which are digital verses those that are manual.

Tax delays

However, beneficiaries should note that the seeded amount is subject to tax implications based on their marginal tax rate and any potential SARS directives for withholding taxes. Beneficiaries should be prepared for potential delays related to tax withholding on the seeded amount and plan accordingly for the impact on their overall retirement fund withdrawal process.

Understanding the specifics of the 10% seeding feature and its tax implications can help beneficiaries make informed decisions about accessing their retirement funds under the two-pot system.

In response to the evolving landscape of tax administration, the South African Revenue Service (SARS) has introduced an auto-assessment process aimed at simplifying the tax filing experience for individuals. Under this system, SARS utilises taxpayer data to automatically generate an initial tax assessment based on the information available to them. While this can expedite the filing process, it is essential for taxpayers to understand that the responsibility for the accuracy and completeness of their tax return ultimately rests with them.

Your return is your responsibility

As a taxpayer, it is imperative to recognise that even if you have been auto-assessed by SARS, conducting a thorough review of your tax return is crucial to ensure that all income earned during the tax year is correctly declared. This diligent approach is essential to avoid potential penalties, fines, or audit triggers that may arise from inaccuracies or omissions in your tax submission.

Check the information carefully

When validating your tax return, consider examining all income sources, verifying deductions and credits, maintaining organised records, seeking professional advice, and utilising tax-filing software. These practical steps can help you verify the accuracy of your return, enhance compliance with tax regulations, and potentially optimise your tax liabilities.

Work with the system

By remaining proactive and vigilant in reviewing your auto-assessed tax return, you demonstrate a commitment to fulfilling your tax obligations responsibly and ethically. Remember, while technology has transformed the tax assessment process, your active participation in validating your tax return is essential to ensure financial transparency and compliance with tax laws.