Two-pot retirement system - The latest legislative amendments to the retirement system, which is due to take effect on 1 September 2024. Pension and provident Funds, preservation funds and retirement annuity funds are required to comply with the two-pot regulations. Certain products may be exempted from a Fund.

The funds will be required to allocate contributions from 1 September 2024 to two components: a third of the contributions in a savings component and the rest in a retirement component.

All contributions and growth accumulated before the implementation date will make up the vested component.

Retirement component - The accumulation of two thirds of net retirement contributions made into a pension, provident or retirement annuity fund following the implementation date of the two-pot system. The money in this component will be preserved until retirement and the member has to buy an income annuity with the full amount.

Savings component - The accumulation of one third of retirement contributions made into a pension, provident or retirement annuity fund following the implementation date of the two-pot system. Withdrawals from this component are allowed once a tax year (subject to fees and tax). The money in this component can be taken as cash at retirement.

Vested component - All retirement contributions and growth that have accumulated immediately before the implementation date of the two-pot system.

On the implementation date, a portion (10% or R25 000, whichever was lower) of the vested component will be transferred to your savings component.

The vested component may have sub components:

• Pension component - total value of the accrued amount in the pension fund.
• Provident component - total value of the accrued amount in the provident fund.
• Retirement annuity component - total value of the accrued amount in the retirement annuity fund.

Whichever are applicable.

The vested component will remain subject to the retirement rules that applied up to the date the new regulations came into effect. No further contributions may be made to the vested component. It will continue to grow with returns less fees.

Savings withdrawal - A right of a member of a pension, provident, preservation or retirement annuity fund to a pre-retirement withdrawal from the savings component, with the following limitations:

• One withdrawal per tax year
• The value of each withdrawal may not be less than R2 000 before considering fees
• Fees will be deducted before you receive the withdrawal amount
• The maximum withdrawal amount is the value in this component at the time of withdrawal
• The savings withdrawal benefit will be taxed at the member’s relevant marginal income tax rate (as provided by SARS)

Tax year - For an individual, the tax year runs from 1 March until 28/29 February of the following year. The tax year is named by the year in which it ends e.g. the 2024 tax year runs from 1 March 2023 to 29 February 2024.

Marginal income tax rate - Tax rates that apply to different levels of taxable income bands, currently 18% – 45%. SARS may change this from year to year.

Contributions - The amount that is added to an investment. It can be before or after fees. It can be a lump sum, a monthly contribution or a yearly contribution.

Transfers from another product or fund - The transfer value will be invested in the same components and in the same proportions that they were before the transfer.

Fund value (or fund benefits) - This the investment value in a retirement annuity or pension, preservation or provident fund product. The sum of all the components in a fund make up the fund value.

Retirement - A member may retire from age 55. The options at retirement are:

• Use the full amounts in the savings, retirement and vested components (if applicable) to buy an income annuity to provide a regular income during retirement.
• Take a portion or the full amount in the savings component as a cash lump sum (subject to tax).
• Take up to a third of the vested component (if applicable) as a cash lump sum but have to use the rest to buy an income annuity.
• The full amount in the retirement component must be used to buy an income annuity. If the amount in the vested component (if applicable) that must be annuitised (two thirds) plus the amount in the retirement component (full amount) is less than R165 000, take the full amount as a cash lump sum. This needs to be aggregated across all investments in SARAF including amounts previously commuted.

Income annuity - An annuity product is designed to swap a lump sum amount for a regular stream of payments (annuity income) made at specific intervals such as monthly, quarterly or yearly for a predetermined period or intended for the lifetime of an individual.

Seeding - When the new regulations come into effect, retirement funds will be required to ‘seed’ 10% (up to a maximum of R25 000) of the member’s accumulated retirement savings at that date, into the member’s savings component. This will be available for members to withdraw immediately following the two-pot implementation date.

Preservation fund - A fund into which benefits from pension and/or provident funds may be transferred. It preserves both the accumulated savings and the attached tax benefits.

Access to the full value before age 55

• If the total value across all a member’s retirement annuities in a fund is less than the legislative minimum (currently R15 000), a member can withdraw the full value.
• If a member no longer lives in South Africa (cessation of tax residency) as defined by SARS, subject to taxation.
• In case of permanent disability, provided the claim is approved.

Cessation of South African tax residency - Where a member has or intend to cease to be a tax resident in South Africa, they will be able to access their retirement and vested pots before actual retirement.