As you might already know, a new retirement savings system will come into effect from 1 September 2024, known as the two-pot system.
The two-pot retirement system aims to help South Africans manage financial stability and flexibility. It allows partial withdrawals for emergencies while protecting most of the savings for retirement. This aims to address past challenges where people could cash out their full pension savings when changing jobs, leaving nothing for retirement.
What is going to happen?
Your accumulated retirement savings up until 31 August 2024 will go into a vested component. There will be a once-off compulsory transfer of 10% of your retirement savings on 31 August 2024 (capped at R30 000) to the savings component. From 1 September 2024, one-third of contributions will go into a savings component and the remaining two-thirds will go into a retirement component.
The new system will allow members to access a portion of their retirement savings for emergencies. One third of retirement funds are preserved in a savings component that can be accessed at any point in time, while the remaining two-thirds are reserved for retirement, ensuring financial security.
To access your retirement component, you must be at least 55 years of age, and the full amount must be paid in the form of an annuity (not cash). When you resign from the employer, this component can only be transferred; you cannot gain access to it before retirement age.
The vested component will be ring-fenced and the existing rules will continue to apply.
How will withdrawals from the savings component work?
- Members can withdraw from their savings component once per tax year (1 March to end of February).
- A transactional fee will apply:
- R100 for pre-tax withdrawals between R2 000 and R5 000.
- 2% for pre-tax withdrawals higher than R5 000, capped at a maximum fee of R600.
- Minimum withdrawal is R2 000.
- Maximum withdrawal is the full value of the savings component at the time of withdrawal.
- Any withdrawals before retirement will be taxed at your marginal income tax rate, which will depend on your taxable income for the tax year, including the withdrawal amount.
- The Pension Fund’s administrator will apply for a tax directive from SARS and deduct the tax before paying your withdrawal benefit. SARS requires your specific information to issue a directive; if certain information has not been provided to the Fund, the withdrawal cannot be processed.
Tax Examples
| Scenario | Pre-tax Withdrawal | Tax | Transaction Fee | Net Amount |
|---|---|---|---|---|
| 18% marginal income tax rate | R30 000 | R5 400 | R600 | R24 000 |
| 36% marginal income tax rate | R30 000 | R10 800 | R600 | R18 600 |
It is also important that members are aware of the implications of making withdrawals before retirement:
- Each savings component withdrawal reduces the amount available to provide you with an income at retirement.
- In addition, a savings withdrawal benefit will be taxed and has the potential to move you into a higher tax bracket, depending on your taxable income and the value of the withdrawal, resulting in less after tax “take-home” pay.
Withdrawal process
Complete the attached form and submit it to info@arcpf.co.za
Important Survey
To ensure adequate cash exposure within the ARC Pension Fund’s portfolios, the Fund would like to conduct a survey to determine the approximate amount of withdrawals that can be expected within the next couple of months. Please be so kind to complete the survey, by using the following link: Savings Component Withdrawal
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