The Two Pot Retirement System changes how retirement savings work in South Africa. It starts on March 1, 2024. This guide explains the system, how it works, and what it means for you in the motor industry. It also shows how to withdraw funds using MIFA, the system's platform.
What Is the Two Pot Retirement System?
The Two Pot Retirement System splits your retirement savings into two pots:
Savings Pot: This pot gets 1/3 of your contributions. You can use it for emergencies. You can withdraw money from this pot once a year. The minimum withdrawal is R2,000. Withdrawals are taxed based on your income. For example, if your total contributions are R90,000, 1/3 is R30,000 (R90,000 / 3).
Retirement Pot: This pot gets 2/3 of your contributions. You can't access this money until you are 65. You must use it to buy an annuity for retirement. For example, if your total contributions are R90,000, 2/3 is R60,000 (R90,000 x 2 / 3).
Key Dates
March 1, 2024: The system starts. Contributions from this date go into the Savings and Retirement Pots.
February 28, 2024: The Vested Pot holds all savings before this date. You can move up to R25,000 or 10% to the Savings Pot. The rest stays in the Vested Pot until you retire.
September 1, 2024: All existing funds move to the appropriate pots.
Withdrawals
Savings Pot
Allocation: 1/3 of your contributions (e.g., R300 of a R900 monthly contribution).
Access: You can withdraw once a year. The minimum is R2,000. Withdrawals are taxed based on your income.
Example: If you withdraw R5,000 and your tax rate is 20%, you pay R1,000 in taxes. You receive R4,000, minus transaction fees.
Retirement Pot
Allocation: 2/3 of your contributions (e.g., R600 of a R900 monthly contribution).
Access: Locked until age 65. Use it to buy an annuity.
The Vested Pot
The Vested Pot holds all savings before February 28, 2024. Current rules apply. You can move up to R25,000 or 10% to the Savings Pot for immediate access.
Initial Boost and Withdrawal Conditions
Boost: A 10% boost up to R30,000 applies to the Savings Pot at the start.
Withdrawals: One per year (March 1 to February 28). Minimum is R2,000. Withdrawals are taxed at your rate. Fees are between 2% and R600.
Case Study: John’s Journey
John, 30, works in the motor industry. His pension balance is R100,000, and he contributes R900 monthly.
Savings Pot Initial Balance: R10,000 (10% boost).
Monthly Contributions: R300 to the Savings Pot, R600 to the Retirement Pot.
Emergency Withdrawal: John needs R10,000.
Tax: At 25%, he pays R2,500 in taxes. Net amount received: R7,500 (minus transaction fees).
How to Withdraw Using MIFA: Step-by-Step Guide
Step 1: Register with MIFA
Visit the MIFA Website: Go to the MIFA registration page.
Complete the Form: Provide personal details, including your ID number and contact information.
Verify Your Identity: Upload identification documents if needed.
Submit the Form: After completing and verifying your information, submit your registration.
Step 2: Download the MIFA App
Find the App: Search for "MIFA" in your app store (iOS or Android).
Download the App: Click "Download" or "Install."
Open the App: Start using the app after downloading.
Step 3: Set Up Your Account
Step 4: Request a Withdrawal
Navigate to Withdrawals: Go to the "Withdrawals" section in the app.
Select the Pot: Choose the Savings Pot.
Enter Amount: Enter the amount you wish to withdraw, making sure it meets the minimum R2,000 requirement.
Submit Request: Follow the prompts to complete your request and confirm details.
Step 5: Track Your Request
Check Status: Use the app to check the status of your request.
Receive Funds: Once approved, the funds will transfer to your bank account. Check for transaction fees.
Tips for Using the Two Pot System
Plan Withdrawals: Withdraw only when necessary. Remember, it's taxed.
Focus on Retirement: Build up your Retirement Pot for long-term needs.
Stay Informed: Rules may change. Keep updated.
Common Mistakes to Avoid
Frequent Withdrawals: Don’t use the Savings Pot too often.
Ignoring Retirement Pot: Don’t neglect your long-term savings.
Overlooking Taxes: Be aware of tax impacts on withdrawals.
Rules and What You Can and Cannot Do
What You Can Do
Withdraw from the Savings Pot once a year, minimum R2,000.
Move up to R25,000 or 10% from the Vested Pot to the Savings Pot.
Make extra contributions to grow your retirement savings.
What You Cannot Do
Access the Retirement Pot before age 65.
Make more than one withdrawal from the Savings Pot per year.
Withdraw less than R2,000 from the Savings Pot.
Conclusion
The Two Pot Retirement System offers a new way to manage retirement savings. For motor industry employees, understanding this system helps you plan better for both emergencies and retirement. Stay informed and make the most of your savings.
