Roberty Driman and Armand Swards at Weksmans Attorneys unpack South Africa’s new “two-pot” tax system.
The newly-proposed “two-pot” retirement system will allow South Africans to have the best of both worlds, says Robert Driman and Armand Swart fromThe new retirement system will allow people early access to a portion of their retirement funds while still conserving a large portion for retirement.
The new two-pot system will affect pension funds, pension preservation funds, provident funds, provident preservation funds and retirement annuity funds . Wheres, upon retirement, the accumulated funds in the retirement pot have to be used to buy a retirement annuity, subject to the minimum threshold amount required to purchase an annuity.Fund members can currently only access their pension funds or provident funds when they retire or resign from their employment.Firstly, a fund member may need access to their funds for a specific issue. On resignation, they would have full access to their funds, placing their long-term savings at risk.
Funds will have to amend their rules, introduce new complicated systems, train employees, and educate fund members. National Treasury said that three areas that require additional work – a proposal for seed capital, legislative mechanisms to include defined benefit funds equitably and legacy retirement annuity funds – will be addressed in the draft legislation.
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