Two-pot retirement system: more questions answered

The two-pot retirement system is quite complicated and although it has been live for more than a month now, South Africans still have questions about how it works and what the implications are for various groups of pension fund members.

Thousands of members have so far navigated the withdrawal process looking for short-term financial relief and many are asking how this system will affect their future, from tax concerns to the impact on long-term planning, Lize de la Harpe, senior legal advisor at Sanlam Corporate, says. She has been fielding many questions about this huge change in the South African pension system.

“The two-pot retirement system is a game-changer, providing access to funds for urgent financial pressures, but we must also think beyond today. Are we solving today’s problems at the cost of tomorrow’s security?

“Understanding how the two-pot retirement system works is critical to make smart, informed decisions that protect your short-term needs as well as your long-term financial well-being.”

Her advice for pension fund members is that while the two-pot retirement system offers alternative opportunities, members must try to take a long-term view. “Each decision, especially deciding whether to withdraw funds now, can significantly affect your future financial security.”

She advises South Africans to seek professional financial advice and weigh their options carefully.

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De la Harpe says these are some of the more unusual but still highly relevant questions South Africans are asking:

Are deferred retirees excluded from the two-pot retirement system?

Not at all, she says. “Only those who are already drawing a pension are excluded. Deferred retirees, those who retired but kept their benefits in the fund, are automatically included in the two-pot retirement system.

“Deferred pensioners who left their jobs but did not cash out are also included. Their fund credit will be split into two pots, giving them access to short-term savings while keeping their future in focus.”

I did not realise how much tax I would pay on my emergency savings pot withdrawal. Can I cancel my withdrawal request?

No. De la Harpe says fund administrators must request a tax directive from Sars when you submit a claim to withdraw funds from your savings pot. A tax directive is final and once it is issued, the fund administrator must pay the member’s tax liability in terms of the Sars tax directive directly to Sars.

If this is not done, the fund would be liable to pay a penalty to Sars. She warns that Sars will only allow the cancellation of tax directive applications where a bona fide mistake was made.

I have an overdraft on my bank account and I know that once my savings pot withdrawal payout hits my account, the bank will deduct what I owe them. I desperately need this money. Can I ask the fund to pay my savings pot withdrawal claim into my spouse’s bank account instead?

No. “The Pension Funds Act specifically prohibits payments of pension fund monies to third party bank accounts,” De la Harpe says.

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Can I cash out part of my vested component when I resign and leave the rest in the fund?

No. If you take a portion of your vested component in cash, the rest of it, along with your savings and retirement components, must be transferred to a new fund, De la Harpe says. “However, you can preserve the other two components within the same fund if you cash out the entire vested component.”

What if I am retrenched? Can I access all of my money?

No. “Retrenched workers can only access their vested component. In some cases, you can access your emergency savings component if you did not withdraw during the tax year or if your emergency component or the balance is less than R2 000 you can dip into it for relief.“

De la Harpe says the retirement component or pot remains locked up for the long haul, which means you will still have that safety net in place for the future.

ALSO READ: Two-pot retirement system: before you withdraw, ask yourself

I am over 55 and a provident fund member. Does the two-pot retirement system apply to me?

If you were a member of a provident fund or provident preservation who was over 55 on 1 March 2021 and remained a member of the same fund, you are automatically excluded from the two-pot retirement system, unless you opt-in within 12 months, De la Harpe says.

“However, keep in mind that if you transfer to a new fund, you will automatically be included in the system going forward. Therefore, it is worth thinking carefully about your choices. There is flexibility, but ensure you understand the full picture before deciding.”