Update: Draft Revenue Laws Amendment Bill (Two-pot system)
National Treasury published the draft Tax Bills on 29 July 2022, which will be open for comments until 29 August 2022.
The key proposals on retirement reform to move towards a “two-pot” retirement system are included in the Draft Revenue Laws Amendment Bill.
It is proposed that the system will come into effect on 1 March 2023, although National Treasury acknowledges that the date is optimistic, since fund rules will need to be amended, system changes will need to be made, funds will have to educate their members, and SARS will need to create capacity to cater for the new pots.
The two-pot system will be applicable to pension funds, provident funds, preservation funds and retirement annuity funds.
Funding of the pots
Three new pots are created, namely a vested pot, a retirement pot, and a savings pot. The vested pot will consist of all contributions up to 28 February 2023, and the current regime will remain applicable to this pot. The vested pot will consist of annuitisation vested rights plus the non-vested rights. No further contributions can be made to the vested pot, except for members of provident funds who were 55 years or older on 1 March 2021, who are able to contribute to their funds in terms of the pre-annuitisation regime until they either leave the fund or retire.
The retirement pot and savings pot will accumulate with contributions from 1 March 2023, which means that there will be no starting balance in either pot.
A maximum of one third of future contributions may be directed to the savings pot, with the remaining contributions directed to the retirement pot. The one third is a maximum amount, and the member can opt to contribute less than one third, or nothing, to the savings pot. It is therefore possible for a member to have only a retirement pot.
The rules of a fund must provide for the allocation to the savings pot. Although the retirement pot can be a stand-alone pot, the savings pot cannot be separated from the retirement pot or be transferred on its own to a different fund.
Any contributions above the maximum tax-deductible amount of 27,5% or R350 000 will flow to the retirement pot. Additional contributions in excess of the allowable deduction will therefore not be permitted into the savings pot.
Contributions and growth will still be exempted from tax, while withdrawals and benefits will be taxed.
Withdrawals
It is proposed that amounts contributed to the retirement pot cannot be accessed before retirement. At retirement date, the total value in the retirement pot must be paid in the form of an annuity, except if it does not exceed R165 000.
Amounts contributed to the savings pot can be accessed without any conditions, but only one withdrawal can be made during any twelve month-period.
The minimum withdrawal amount is proposed to be R2 000. These withdrawals will be allowed only if enabled by the fund rules. To discourage unnecessary early withdrawals, withdrawals from the savings pot will be included in the member’s taxable income for that year and the withdrawal tax table will not apply to withdrawals from the savings pot.
Both pension fund and provident fund members will be able to receive the vested pot (if any) in cash when they resign from employment. The withdrawal tax table will still apply to permissible withdrawals from the vested pot.
Full withdrawals from the retirement, savings and vested pots can take place if a member ceases to be a tax resident for a period of at least three years (similar to the emigration rule for preservation and retirement annuity funds). In these instances, the vested pot will be taxed in accordance with the pre-1 March 2023 tax provisions, while savings pot will be included in the member’s taxable income, and the retirement pot will be taxed in accordance with the lump sum withdrawal tables.
Any funds available in the savings pot at retirement or death can either be withdrawn in full or transferred to the retirement pot. Where the member opts to withdraw funds from the savings pot as a lump sum on retirement, it will be taxable as a retirement lump sum benefit subject to the retirement lump sum table. This could result in a tax-free withdrawal of up to R500 000 upon retirement.
Divorce orders
In the case of divorce, the division stipulated in the divorce order applies to each pot (vested, savings and retirement). Each pot must therefore be proportionally reduced.
Transfers
It is proposed that members will be able to transfer their savings pot and retirement pot to the savings pot and retirement pot in another fund. Transfers can be made into the retirement pot from any other pot, including from the vested pot. No transfers can be made into the savings pot unless they are from the savings pot in another fund.
It is proposed that retirement pots and savings pots cannot be split between funds. A member cannot transfer a savings pot to another fund without also transferring his retirement pot to that fund.
The proposals in a nutshell:
| Vested pot | Savings pot | Retirement pot | |
| Opening balance | All contributions up to 28 Feb 2023 | Nil | Nil |
| Further contributions | None, except for members who were 55 or older on 1 March 2021 | 1/3 of future contributions or less (limited to the tax-deductible portion) | 2/3 of future contributions or more – plus contributions above 27.5% or R350 000 |
| Accessible before termination of service | No | Minimum of R2 000 per annum may be withdrawn | No |
| Tax | In accordance with current regime | As income if accessed before retirement – In accordance with retirement tax table if accessed in cash at retirement | Per retirement tax table |