From 1 September 2024, South Africa’s retirement landscape will change with the implementation of the Two-Pot Retirement System, affecting both payroll and taxes. Here’s what you need to know.
What is the two-pot retirement system?
From 1 September 2024, provident, annuity, and retirement support commitments will be split:
- One-third to a savings pot
- Two-thirds to a retirement pot for purchasing a pension product at retirement
Retirement Savings Components explained
- Vested pot:
- Contributions made before 1 September 2024 (vested rights as of 31 August 2024) will follow current accessibility and tax rules.
- No further contributions are made to this pot.
- Savings pot:
- Starting 1 September 2024, 10% of the vested pot (up to R30,000.00) will be allocated to this pot, as an opening balance.
- Employees can withdraw from the savings pot without resigning.
- Minimum withdrawal of R2,000 annually, no maximum limit but subject to available funds.
- Withdrawals once per tax year (1 March – 28/29 February) from 1 September 2024.
- Remaining funds can be accessed as a lump sum at retirement or transferred to the retirement pot.
- Retirement pot:
- Funds here are blocked off until retirement.
- Used to give wage at retirement through annuities (the current de minimis rule applies)
How does this system impact your payroll and taxation?
- Savings withdrawals are included in PAYE remuneration.
- The retirement fund or administrator will apply for a tax directive to calculate PAYE before making payment.
- SARS source code 3926 will report savings withdrawals; source code 4102 will report the directive tax.
- Taxed under normal Personal Income Tax (PIT) progressive tax tables.
Special Consideration:
- Members of provident funds aged 55+ on 1 March 2024, are prohibited from the two-pot retirement framework unless they select in
Paymaster will adjust for savings withdrawals from 1 September 2024. Employers don’t need to calculate or report the contribution split; the retirement fund will handle it. Learn more about the Two-Pot Retirement System. For further details, contact your Fund or administrator.
Resources
Tax Implications of Withdrawing from Two-Pot Retirement System