There are more questions than answers……
……as the old song goes, I remember singing it to my daughter when she was at the “why?” stage.
The new two pot system seems simple enough, but listening to a group discussion yesterday on a two-day webinar on the future of retirement planning organized by Allan Gray, it seems there are unintended consequences, but these are isolated and mainly for special situations.
I have received some questions, and I will collate them below with my paraphrased answers for simplicity. But there may be gaps in my understanding. Please send me some more questions.
Does this apply to me?
No.
Only if you have not retired from a
Retirement annuity fund
Pension preservation fund
Provident preservation fund
Pension fund
Provident fund
Has one third of my historic fund been transferred to my savings pot?
No.
Ten percent of your historic fund will be transferred to your new savings pot.
Limited to R 30 000.
What happens to my monthly or annual contribution to my fund post September 2024?
One third of your new contributions will now go to you savings pot.
Two thirds of your new contributions will go to your retirement pot.
Can I take my savings pot free of tax?
No.
You will be taxed at your marginal tax rate on all withdrawals from your savings pot.
Not your average tax rate, your marginal, or highest tax rate.
The tax will be withheld from your contribution, so you will pay the tax before you receive your savings pot.
Can I withdraw everything when I change employment?
No.
That is the nub of the matter.
You cannot take your new pension pot funds until you actually retire.
A bit “Big Brotherish” but 70 000 people did this last year resulting in nofunds being available for their retirement.
Will the new system affect my lump sum distribution on retirement?
No.
Your one third lump sum will still be available to you on retirement.
The first R 550 000 will be tax free.
The rest taxed on a sliding scale.
Should I do anything?
No.
Rather leave the funds for your retirement.
That is what they are there for.
Don’t use the savings pot as a general savings scheme.
The tax is too onerous which makes the saving too expensive.
To sum up, the reforms are to ensure that your pension remains largely in place until you retire. The savings pot is for emergencies before you retire.
The savings pot is not a great savings vehicle. The tax on the savings pot is so high, you should only use the savings pot in dire emergencies when all other savings have been used.
As so often in financial planning when you have a portfolio of quality assets, the best thing to do is…..
….to do nothing.
Look forward to more questions.