Two-pot system explained: A simple guide for South Africans
All South Africans in the working field are encouraged to invest in a reliable retirement system to ensure their golden years are stress-free. The two-pot retirement fund is one such system that is practical, reliable, and versatile. This article details the two-pot system along with other essential information on the retirement fund.
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TABLE OF CONTENTS
- What is the two-pot system?
The concept of private retirement funds has existed for over 100 years, with the first private pension plan in the USA established by the American Express Company in 1875. The first retirement funding system in South Africa was established in 1956 following the passing of the Pension Funds Act.
Investing in a two-pot system retirement plan enables South Africans to control their 'rainy day' finances better, giving them more financial stability. What does the system entail, and how does it work?
What is the two-pot system?
According to a press release by the South African government's National Treasury on August 31, 2024, the two-pot system is a reform that allows retirement fund members to make partial withdrawals from their funds before retirement age while preserving a portion only accessible at retirement.
This reform means that individuals do not need to leave their jobs prematurely to access retirement funds in emergency financial situations, providing more financial stability. The system came into effect on September 1, 2024.
How does it work?
The reform entails three types of components, being:
- A savings component
- A retirement component
- A vested component
Only the savings and retirement component can receive retirement contributions from the implementation date. The vested component retains the retirement benefits accumulated before the implementation date, and investment growth is still credited to the vested component.
Retirement contributions are split into a savings and retirement component, with a 1/3 (one-third) ratio of all total contributions going into the savings component. 2/3 (two-thirds) go into the retirement component.
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Who is the system designed for?
All qualifying active retirement fund members within both the private and public sectors can benefit from this reform. Those excluded include:
- Individuals who have generation or legacy retirement annuity policies.
- Individuals who have funds with no active participating members (funds in liquidation, beneficiary funds, closed funds or dormant funds).
- Individuals with provident funds who were 55 years and older on March 1, 2021, who have not opted to be part of the two-pot system.
How long does the two-pot system take to pay out?
The two-pot pension fund's payout timeslots may vary, depending on the organisation. The following is a guideline on organisation time frames:
- Transport Sector Retirement Fund (TSRF): The withdrawal process can take a minimum of two weeks.
- GEPF: The process with GEPF can take up to 60 working days following a submitted claim.
How can you claim from the two-pot system?
You can claim from the two-pot system by following these steps:
- Step 1: Log on to your retirement provider's website.
- Step 2: Log your claim, along with the relevant information required.
- Step 3: Review your information and submit it.
- Step 4: Confirm further information, such as banking details and tax number.
- Step 5: Accept any relevant terms and conditions.
How much can you withdraw from your pension fund?
The value you may withdraw depends on the kind of pension fund you have. The two-pot retirement system withdrawal limit is one-third of your vested component before retirement.
For customers who want a precise estimate of their expected payout, a two-pot system calculator is available on the SARS Online Query System (SOQS). The calculator requires basic information, such as your annual income and the amount you plan to withdraw.
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Additional information
It is essential to note the following when using the calculator:
- The figures shown are based on supplied data and may change after your final tax directive is provided or when your next tax return is processed.
- Taxable income is calculated based on information on SARS records, which may not match the remuneration value declared on your tax directive application.
- You may be subjected to additional fees by your fund administrator.
How to apply for a two-pot system online
The detailed application progress differs depending on the fund, but you can apply for the two-pot system with your brokerage company by:
- Contacting your fund provider.
- Confirming your eligibility for the two-pot system.
- Considering the tax implications when you withdraw from the two-pot system.
- Completing a savings request form.
- Submitting your claim.
- Waiting for the approval process to confirm or deny your request.
Must you be registered for tax to use the two-pot system?
To use the two-pot system in South Africa, you must be registered for tax. A tax directive will not be given without a valid tax reference number. If you are unsure of your tax status, you can check if you are registered for tax here.
The two-pot system was created to accommodate any South Africans who may require urgent financial aid but have no other avenues to obtain the funds needed. You may speak to your retirement fund broker for further information or assistance on the two-pot pension fund.
DISCLAIMER: This article is not sponsored by any third party. It is intended for general informational purposes only and does not address individual circumstances. It is not a substitute for professional advice or help and should not be relied on to make decisions. Any action you take based on the information presented in this article is strictly at your own risk and responsibility!
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Source: Briefly News
