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Retirement Savings - Pot - After September 2024
By: Ilse de Klerk
Retirement Savings
After receiving information from different sources, this is my understanding of the new rules.
Retirement savings are products for funds that you save for when you retire.
These are your Retirement Annuities, Provident and Pension Funds, Preservation Funds,
Defined Contribution and Defined Benefits
Current rules relating to these funds.
- These funds are protected from creditors
- These funds do not get taxed. This means that there are no tax triggers on the funds.
- Example: You do fund switches - no CGT when you sell your units of the one fund and then buy units of the new fund.
- No interest tax on the funds.
- You benefit 100% of fund performance.
- These funds' purpose is to provide you with an income when you retire.
- You must invest these funds into an income contract. Income contract = Annuity = Life or Living Annuity or combination.
- You will pay normal income tax on the income you will receive from this Annuity contract.
- On the date you retire from the fund, you do have the option of 1/3 cash lump sum paid into your bank account, AFTER TAX WAS DEDUCTED, and the 2/3 fund value must be invested into an income contract. The retirement tax table is found on SARS website.
- "Retirement" from the contract is when you are 55 years old, or, proof of severe ill health and can not ever find work again, or, retrenchment, or, for your loved one, your death.
New rules relating to retirement savings
Savings Pot - Pot 1
- Every tax year, you can withdraw ONCE. The reason must be for emergency. What the emergency will be, will be up to the product provider requirements.
- You will pay tax on that withdrawal. Tax will be at your marginal tax rate. The product provider must declare these withdrawals to SARS. On your annual income tax, it will be included as income received.
- The minimum withdrawal is R2 000 of fund value. No max limit, except, there must be funds in there.
- You can transfer from Pot 1 to Pot 2
Retirement Pot - Pot 2
- Access at retirement age 55
- You must invest the funds into an income annuity
Vested Pot - Pot 3
This is your current, pre-September 2024, retirement savings. Your current savings will 'seed' Pot 1. The funds left in this Vested Pot will keep the 'old' retirement rules until you reach age 55
Seeding - Your vested pot will transfer 10% up to a maximum of R30 000 into the savings pot.
Some exceptions - Each product provider will have their own rules but retirement savings from years long year ago, combined savings, and life and or disability cover. These contracts should be considered carefully. Provident Fund - if you are already age 55 or older, and have not yet 'retired' from your contract, the option is there to exclude them from the new rules.
De Minimus Rule - If the total funds from all the pots are less than R165 000. Then you may take it all as a lump sum.
Fees
Nothing is free.
The product providers may charge a monthly fee for all the new admin and management applicable to keep the 3 pots up to date.
There will also be an admin charge for the as and when changes, for example: the savings pot withdrawal administration.