Making Withdrawals from Your Retirement Savings Pot

With the introduction of the new two-pot system for retirement funds starting on 1 September 2024, it’s important for members to understand the new withdrawal processes and requirements. The Association for Savings and Investment South Africa (ASISA) has provided some essential insight into how this will work.

Overview of the Two-Pot System

The two-pot system is designed to balance the need for emergency access to retirement funds with the necessity of preserving long-term savings. Here’s what you need to know:

1. No Changes to Existing Savings: Any retirement savings accumulated up to 31 August 2024 remain untouched. These savings are part of the “vested component,” and your current rights to these funds are fully protected.

2. Transition to the New System: From 1 September 2024, 10% of your existing retirement savings, up to a maximum of R30,000, will be moved to a new savings component. This one-time transfer allows for withdrawals if you face financial hardship.

Preparing for Withdrawals

The withdrawal process will vary based on your specific retirement fund. Here are key steps to prepare:

1. Update Your Contact Information: Ensure your retirement fund has your current contact details. Missing communication can result in missing critical updates about the withdrawal process.

2. Verify Personal Information: Make sure your personal details, including the spelling of your name and your identity number, are correct and consistent across all records. Mismatched information can lead to application rejections to prevent fraud.

Applying for a Withdrawal

To apply for a withdrawal, several conditions must be met:

1. Tax Registration: You must have a valid income tax registration number. Even if you currently don't pay taxes, a withdrawal is considered income and could push you into a higher tax bracket.

2. Address Outstanding Taxes: If you owe any taxes, penalties, or interest to the South African Revenue Service (SARS), expect these debts to be settled from your withdrawal amount. This may reduce the payout you receive.

3. Finalising the Withdrawal: Once your fund administrator applies for a tax directive, the process cannot be reversed. Consider the full tax implications before submitting your application, as the withdrawal might incur additional administrative fees.

Important Considerations

• Minimum Balance: You need at least R2,000 in your savings component to make a withdrawal. Tax and administration costs will be deducted from the withdrawal amount.

• No Automatic Payments: You must submit an application form to initiate a withdrawal. The presence of funds in the savings component does not mean automatic payouts.

Timeline for Withdrawals

Once the new system is implemented, and fund administrators have transferred the "seeding" amount into the savings component, you can begin submitting withdrawal applications. Here’s what to expect:

1. Verification: Your application will undergo a verification process to prevent fraud. Ensure all details match the fund’s records to avoid delays.

2. Tax Directive: The fund administrator will request a tax directive from SARS, which will outline any payable tax and outstanding debts. These amounts will be deducted from your withdrawal before the balance is transferred to your verified bank account.

3. Processing Time: Expect some delays, especially in the initial weeks following the system’s implementation, due to high volumes of applications. Patience is key during this period.

Final Advice

Withdrawals from your retirement savings should be a last resort. Consider the long-term impact, including taxes and reduced retirement funds. If uncertain, seek advice from your retirement fund or a financial adviser. Remember, preserving your retirement savings is crucial for your financial security in the future. Only withdraw if absolutely necessary and after careful consideration.

For more detailed information and updates, visit our Tax A Sured (Pty) Ltd website and follow us on social media.