New South African Pension Rules Start June 1- How They Affect You
Starting June 1, 2025, South Africa will implement the two-pot retirement system, a significant reform aimed at balancing immediate financial needs with long-term retirement security.
This system allows fund members to access a portion of their retirement savings before retirement while preserving the remainder for their retirement years.
Understanding the Two-Pot Retirement System
The two-pot system divides retirement savings into three components:
- Vested Component: Savings accumulated before August 31, 2024, remain under existing rules and are not subject to the new system.
- Savings Component: Starting June 1, 2025, one-third of all new contributions will go into this pot. Members can make one withdrawal per tax year, with a minimum amount of R2,000. Withdrawals are taxed at the individual’s marginal tax rate.
- Retirement Component: The remaining two-thirds of new contributions will be preserved until retirement and used to purchase an annuity. This component cannot be accessed before retirement.
Key Features and Details
Seeding the Savings Component
On June 1, 2025, a once-off transfer of 10% of the vested component, capped at R30,000, will be moved to the savings component to provide immediate access to funds. This is known as “seed capital.”
Withdrawal Conditions
- Frequency: One withdrawal per tax year.
- Minimum Amount: R2,000.
- Taxation: Withdrawals are taxed at the individual’s marginal tax rate.
- Remaining Balance: A minimum of R2,000 must remain in the savings component after withdrawal.
Eligibility
The new rules apply to all active members of retirement funds in South Africa, including pension, provident, and retirement annuity funds. However, members of provident funds who were 55 years or older on March 1, 2021, are excluded unless they opt into the new system.
Retirement Components
| Component | Contributions Included | Accessibility | Taxation | Purpose |
|---|---|---|---|---|
| Vested Component | Contributions before August 31, 2024 | Upon resignation or retirement | Existing tax rules apply | Preserved under old rules |
| Savings Component | One-third of contributions from June 1, 2025 | Once per tax year (min R2,000) | Taxed at marginal tax rate | Emergency access |
| Retirement Component | Two-thirds of contributions from June 1, 2025 | Only at retirement | Taxed upon retirement | Long-term retirement savings |
Action Steps for Members
- Consult Your Fund Provider: Understand how your contributions will be allocated under the new system.
- Update Personal Information: Ensure your retirement fund has your current contact details to receive important communications.
- Plan Withdrawals Carefully: Use the savings component for genuine emergencies to avoid compromising your retirement savings.
- Seek Financial Advice: Consult a financial advisor to align the new system with your long-term financial goals.
The two-pot retirement system introduces a balanced approach to retirement savings, offering flexibility for emergencies while safeguarding long-term financial security.
Members are encouraged to understand the new system thoroughly and make informed decisions to optimize their retirement outcomes.
FAQs
Can I withdraw funds from the retirement component before retirement?
No, the retirement component is preserved until retirement and cannot be accessed earlier.
What happens if I don’t withdraw from the savings component?
Funds in the savings component will continue to grow and can be withdrawn in future tax years or at retirement.
Are there any penalties for withdrawing from the savings component?
Withdrawals are taxed at your marginal tax rate, but there are no additional penalties.