Treasury has a draft proposal before parliament which allows you to access your retirement funds for emergencies and unforeseen expenses. This may seem like good news as many South Africans were financially strapped during the COVID lock down and could have found some relief if they could unlock their pension funds. In desperation many South Africans actually resigned from their employment so that they could access their pension funds.
A two pot proposal will come into effect in 2023 but there are pros and cons……
The Upside
All contributions to your retirement funds from 2023 will be split in to two pots with one third into the cash pot and two thirds into your retirement fund pot.. You will be able to access the cash pot once a year with a minimum of R2000. The contributions will still be allowed as a deduction against your taxable earnings every year within the current limits of 27,5% with a maximum of R350 000 per annum.
The returns will be exempt from tax so the performance will be that much better.
The new cash pot does not have to be taken. It is there for emergencies and should only be used as a last resort. If not used it can be added to the retirement pot when you decide to go on pension.
The Downside
When you make the withdrawal it will be subject to tax. So the tax deduction you enjoyed previously on your contributions is paid back.
Many members will be enticed into accessing their funds because of the availbllity. This will have a huge effect on the value of your pension in the future.
Your current retirement funds are not accessible. Only the pots set up from future contributions made in 2023 onwards will available.
There is still a way to go before the proposal is finalised. We will have to wait and see…..