Sanlam urges South Africans to pause before withdrawing

Cape Town - Sanlam has long been preparing for the Revenue Laws Amendment Bill, 2023 which President Ramaphosa has now signed into law, for implementation on 1 September 2024. This establishes the Two-pot system, which aims to give struggling South Africans access to a portion of their retirement savings in an emergency.

“We fully support the new system which seeks to balance immediate financial struggles with long-term security,” says Lorraine Mekwa, Managing Executive, Sanlam Corporate. Financial advice and education will be key to enabling people to make informed decisions through understanding the long-term impact of withdrawals. Mekwa adds: “It is important to encourage people to learn about the Two-pot system, understand the consequences of making an early withdrawal and plan for what that means for your future self.”

Lize de la Harpe, Senior Legal Advisor at Sanlam Corporate says, “From 1 September, all new monthly retirement contributions will be split, with a third going to the Emergency Savings pot, and two-thirds going to the Retirement pot. For example, if you’re contributing R300, R100 will go to Emergency Savings, and R200 to the Retirement pot. Following this, people will be permitted one annual withdrawal from their Emergency Savings, subject to prescribed minimums of R2 000. Note that there is marginal tax on every withdrawal made.

A financial adviser can help people think through their options and analyse the opportunity costs of big financial decisions.

Ultimately, the new two-pot system means that South Africans can now access some of their savings without having to resign or cash out their pension funds. This brings more flexibility but also the need for caution and a well-considered financial plan. “We are committed to supporting individuals to save enough to retire comfortably. Our north star is to empower more people to be financially confident, secure, and prosperous. A big part of this is walking the retirement journey alongside individuals at every life stage,” says Mekwa.

De la Harpe explains that members will have access to the savings pot come 1 September. “On the first of September, 10% of the value of your retirement fund, or up to R30 000, will automatically be allocated to your Emergency Savings pot. Any new contributions you make from that date will be split between your pots, with two-thirds going to the Retirement pot, which will remain inaccessible until you retire.

The initial seeding calculations, which are based on the market value of each person’s existing retirement savings as at end August 2024, determine how much goes into each pot.

All retirement funds must now participate in the new Two-pot system; however, individuals do not need to withdraw money from their Emergency Savings pot if there is no emergency. Investment returns will not be affected by the ‘split between pots’.

Provident (preservation) fund members who were 55 years or older on 1 March 2021 (T-day), and who remained members of that provident fund or provident preservation fund, are exempted from these provisions unless they opt-in to participate in the Two-pot system.

De la Harpe says that there’s still a lot left to finalise, with the President needing to sign the Pension Fund Amendment Bill for the changes to be fully implemented. She also stresses people must understand the tax implications of a withdrawal, “Note, you will pay tax on every withdrawal you make. You also need to ‘settle’ any outstanding taxes you owe before you can access your funds. SARS still needs to finalise their business requirement specification requirements for tax directive applications.

Members of the public can access Two-pot information via a dedicated page available on the Sanlam website. We want to assure our clients that extensive work has been done to prepare for this change, and we will be ready for its implementation on 1 September. As ever, our purpose is to help every person to live – and retire – with confidence.