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How to ACE the new 2-POT RETIREMENT System 🍯🍯

PLUS: First look at Paul's new favourite cup

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MoneyMoves
September 06, 2024

The introduction of the Two-Pot System marks a significant shift in South Africa's retirement savings framework. It’s designed to provide a financial safety net during tough times while still promoting long-term saving for your retirement. In this episode, we’ll cover the following key points:

  • What is the new 2-pot system?

  • Withdrawal rules

  • Costs of withdrawal

  • Reasons to withdraw

Prefer to watch us break it down? Head over to YouTube, where we dive into the details in a 10-minute video (plus, check out Paul’s new favorite cup!🍵)

What is the 2-Pot System?

Before 1 September 2024, all contributions to a Retirement Annuity (RA) could only be accessed from age 55. This was your classic “nest egg.”

The Big Change: From 1 September 2024, all contributions made to an RA will be split into two separate pots:

  • Two-thirds: "Retirement Pot" – accessible only upon retirement

  • One-third: "Savings Pot" – accessible once per year

Savings Pot Booster Pack

To kickstart your Savings Pot, 10% of your total RA value as of 1 September 2024 will be transferred into it, capped at a maximum of R30,000.

Example 1:

RA value 31 Aug = R250,000

10% transfer to Savings Pot = R25,000

Example 2:

RA value 31 Aug = R400,000

10% transfer to Savings Pot = R40,000, but limited to R30,000.

Withdrawal Rules

  • Number of withdrawals: One withdrawal is allowed every tax year (1 March to 28 February).

  • Minimum withdrawal: R2,000 per withdrawal.

  • Maximum withdrawal: There is no maximum - meaning you can empty the Savings Pot if needed.

Costs to Withdraw

Tax on withdrawal:

Withdrawals are taxed at your marginal income tax rate (the same as your PAYE). The amount you withdraw will be treated as additional income, much like a “bonus” from your employer, which could push you into a higher tax bracket. Click here to find out your current tax bracket.

Opportunity cost:

Opportunity cost is what you give up when making a decision. If you withdraw from your Savings Pot, that money is no longer invested, which means you lose out on potential market growth.

Here’s a striking example: if you withdraw R30,000 today (which will be roughly R20,000 after tax), that R30,000 could have grown to around R500,000 over 30 years. That's a big price to pay for short-term relief.

Should you Withdraw?

In our opinion, it's generally not a good idea to withdraw. However, there are two situations where it may be justified:

  • Excessive, expensive debt: If you’re burdened by high-interest debt, withdrawing funds to pay it off could be wise—but be sure not to fall into the same trap again.

  • Genuine financial emergency: If you face an unavoidable financial crisis, withdrawing from the Savings Pot can help, but aim to replenish the funds as soon as possible.

Episodes coming your way 🎬

So, what are we covering? Well, depends on who’s asking (literally!). Our aim is simple: Ask your questions, and we’ll cover them as best we can: to inform, educate, and entertain.

Season1 Topics

1. What is a TFSA and how can I use it to my advantage?

2. Can you explain the different types of investments?

3. I hear people are making money with Arbitrage. What is it?

4. Debt: Is it good or bad?

5. Life insurance - should I get it and why?

6. How big of a deal is compound interest?

7. Where should I invest my money?

8. Should I go the DIY route or use a financial advisor?

Who are we?😎

The Knowledge Chest

Paul holds an Honours degree in Financial Analysis from Stellenbosch University. With a career spanning investing, accounting, and education, Paul is committed to becoming the best financial planner in South Africa. Despite his many accolades, Paul insists that his greatest achievement is that he is dating a yoga teacher.

The Anchor

Ingrid holds a BA Honours in Journalism from Stellenbosch University. She is a self-diagnosed workaholic, excelling in various roles such as marketing, publicity, social media, and strategic partnerships. Ingrid's commitment to promoting wellness and balance extends beyond her professional endeavours, as she is also an avid yoga teacher.

The Magic Maker

Alwin holds a BCom in Business Management from Stellenbosch University. Alwin has a unique ability to make things happen - if you need something done, he’s your man! Alwin currently works in the alumni office at the university, connecting past and present Maties and ensuring a brighter future for the youth.

Connect with us📲

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