Two pots: Insufficient funds, tax and other hurdles facing members who want to withdraw

At least 20 percent of retirement fund members will not have enough money in their savings pot on 1 September 2024 to make a withdrawal, according to the Retirement Matters Committee of the Actuarial Society of South Africa (ASSA).

The savings pot of the new two-pot retirement system will be kickstarted with a once-off transfer from your existing savings on 1 September 2024. The amount that will be transferred or seeded to the savings pot is 10 percent of your savings on that day, but limited to a maximum of R30 000.

However, there is also a minimum withdrawal amount – you can only withdraw if you have at least R2 000 to withdraw.  

Natasha Huggett-Henchie, consulting actuary and member of the ASSA Retirement Matters Committee, says your fund credit on 31 August 2024 must be at least R20 000 in order for you to have the minimum withdrawal amount on 1 September 2024.

If you are planning to withdraw, don’t wait for 1 September 2024 only to be disappointed, Huggett-Henchie says. Rather get your retirement fund statement now and check if you have at least R20 000 in your fund.

The ASSA Retirement Matters Committee surveyed some of the country’s biggest retirement fund administrators and found that among retirement fund members who will have too little to withdraw after 1 September, the average benefit is R9 000.

The savings pot of a member with R9 000 of savings on 1 September 2024 will be seeded with R900.

Thereafter one third of all future contributions will be allocated to the savings pot and the other two thirds to the retirement pot that must be preserved until retirement.

Huggett-Henchie estimates that it will take the average employee with too little to withdraw around four to six months from 1 September 2024 to build up a savings pot of R2 000. This means it is likely they will only be able to access their savings pot for the first time early in 2025.

Your tax needs to be up-to-date

Withdrawals from the savings pot will be taxed at your marginal tax rate and the South African Revenue Service (SARS) is expected to issue a tax directive to guide your retirement fund administrator on the tax rate to apply.

In order to check the applicable marginal tax rate, SARS will need your tax number.

If you do not have a tax number you may be denied a withdrawal from your savings pot, Michelle Acton, retirement reform executive at Old Mutual, says in a recent release by the administrator.

Also once you apply for a withdrawal and a tax directive is requested from SARS, you cannot cancel the withdrawal.

More tax may be deducted if you owe

Acton says another problem may arise for retirement fund members who have outstanding tax as this may be deducted from your savings pot withdrawal.

If you have an outstanding tax debt with SARS, your retirement fund administrator will be issued with a notice to pay this debt from the withdrawal amount first and it can only pay you the balance, John Paul Fraser, a tax attorney at Tax Consulting SA, says in a recent article published by the company.

Remember you could have outstanding tax even if you have failed to file tax returns.

SARS has the ability to assess your liability for tax based on the information it has from third parties such as your bank, your investment house or your employer. If SARS issues an assessment that you do not agree with it, you need to lodge an objection.

Withdrawals may take time

Although the two-pot retirement system legislation provides for members to have access to their savings pots on 1 September 2024, in practice it is unlikely that you will get cash on that day.

Acton says the calculations about how much must be transferred or seeded to your savings pot can only be conducted after the end of August, using the market values of the savings in your retirement fund account as at the end of that month.

Establishing these values could take several working days to weeks, depending on the rules set by each retirement fund, she says.

The legislation provides for funds and their administrators to do these calculations soon after implementation, but not necessarily on that date, and as a result the day on which you can actually access your savings is likely to be after 1 September, Acton says. 

Funds will communicate to members about the claims process and when they will be ready to start processing claims, she says.