Government can get R5 billion from retirement funds

[Nat Quinn]

Government can get R5 billion from retirement funds

 

South Africa’s new two-pot retirement system will give the government an estimated R5 billion in tax revenue.

This is according to the National Treasury’s Full 2024 Budget Review, which confirmed that the two-pot retirement system will kick in from 1 September 2024.

This reform allows pre-retirement access to a portion of one’s retirement assets.

From September 2024, contributions to retirement funds will be split – one-third will go into a “savings pot”, and two-thirds will go into a “retirement pot”.

Retirement fund members will be able to withdraw amounts from the savings component before retirement, while the retirement component will remain protected.

South Africans can withdraw money from their savings component once per year, with a minimum withdrawal of R2,000.

“The two-pot system ensures that we strike a balance between preserving contributions to safeguard a better retirement for members while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress,” Finance Minister Enoch Godongwana explained.

Savings accumulated up to 1 September will not be affected, except for the initial seed capital amount.

This amount will be the lower of 10% of the fund value on 31 August 2024 or R30,000. It will be transferred from accumulated retirement savings to the “savings pot” to assist fund members who may prefer an immediate withdrawal due to a financial emergency.

This seeding will be a once-off event. If not used, it will still be available in the future.

Contributions to the affected retirement funds will remain tax deductible and tax-free while growing in the fund.

However, pre-retirement withdrawals from the savings component will be taxed at marginal rates, like all other income. When taxable income is lower, taxpayers will be taxed at lower rates.

The National Treasury revealed that this would lead to an estimated R5 billion in tax revenue in 2024/25 due to tax collected as fund members access once-off withdrawals.

However, the seed capital transfer is a once-off event, so this revenue will not flow into the following fiscal years.

“The optimal option is still to preserve retirement savings as long as possible, as the amounts grow at compound rates and can attract lower tax rates,” the Treasury said.

 

SOURCE:Government can get R5 billion from retirement funds – Daily Investor

[Author]

Posts