South African pension fund members who are considering accessing a portion of their retirement savings under the two-pot system must realise it is a costly way of getting money.
The two-pot system comes into effect at the beginning of September. Under this system, a retirement fund member's contributions are divided into a savings component accessible once in a tax year and a retirement component. For existing retirement fund members, a third component the vested pot contains the fund member's contributions up to 31 August, 2024.
Withdrawals from the savings pot will be taxed at the marginal rate, which is significantly higher than the existing tax rate applicable to early retirement fund withdrawals.
Subedra Reddy, executive head of actuarial services at employee benefits firm NBC Holdings, compared the impact of the two tax rates - and the difference is vast.
He uses an example where Mr X resigns from his job and decides to withdraw his total retirement fund credit of R50 000.
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