Need cash, quick? Two Pot Retirement System: What you need to know...
Zinathi Gquma simplifies the two-pot retirement system.
On the Money Minute on 947, Zinathi Gquma breaks down the two-pot retirement system.
From 1 September, retirement fund members will have access to a portion of their retirement savings.
In other words, contributions to retirement funds are no longer completely locked until 55.
Essentially, your pension will be split into two pots:
- Your savings pot, from which you may withdraw once every tax year.
- Your retirement pot will be locked and only accessible when you turn 55.
“On 31 August they will transfer 10% or a maximum of R30 000 to your savings pot, whichever is lower.”
- Zinathi Gquma, Money Minute
Any pension contributions from 1 September will be split up with a third going into your savings pot while the remainder goes into your retirement pot.
While the additional cash injection may seem like a good idea, the big winner here is ultimately the South Africa Revenue Service, says Gquma.
Every withdrawal is subject to tax, based on your income bracket.
“Whatever amount you take out of that savings pot, SARS will add it to your normal salary and that will be your taxable income..."
- Zinathi Gquma, Money Minute
“Be careful, depending on what you withdraw from your savings pot, as it might actually put you in a higher tax bracket.”
- Zinathi Gquma, Money Minute
In many cases, the income tax is much higher than the lump sum tax rate you normally pay when you retire.
She recommends speaking to your financial advisor before making any withdrawals.
Scroll up to the audio player to listen to the discussion.