Now that the two-pot system is effective, you might be tempted to access up to R30,000 from your pension fund. Perhaps you’re considering settling some debt or facing an urgent financial need. But before you make that decision, let’s take a moment to think this through. Stop! Before you touch your pension fund, it’s essential to understand the tax implications and potential losses you could face.
If you’ve already decided to hold off on accessing your money because you want to preserve it for retirement or resignation, this message is equally important for you. Your pension fund money is pooled with that of other members, and their decisions can significantly impact you. If there’s one video of mine that you want to watch until the end, let it be this one.
Why is this important? Because knowledge is power, and the more informed we all are, the better we can protect our future.
Understanding the Two-Pot System
Let’s delve into how the pension fund operates under the new two-pot system. Picture this: you have R3 million sitting inside your retirement annuity. Before this system, all funds were combined in one pot. Now, they’re split into three distinct pots: the vested pot, the savings pot, and the retirement pot.
- Vested Pot: This pot holds the money you had before the law took effect, remaining untouched.
- Savings Pot: This is where you can access funds, including up to R30,000.
- Retirement Pot: This pot is for the money that’s safeguarded for your future retirement, typically accessible only when you officially retire, usually above age 55.
The Implications of Accessing Funds
Now, let’s clarify how this applies to your pension fund, especially if it operates as a defined benefit fund. Imagine, once again, that your pension fund has R3 million. The system splits your money just like it does for a retirement annuity, but with a crucial difference: your actions don’t just impact you; they affect all 1.2 million other government employees in the pool.
Consider this scenario: If 300,000 members decide to withdraw R30,000 each, that amounts to a staggering R9 billion leaving the fund. Such a massive withdrawal could jeopardize the fund’s overall health, potentially leading to changes in how benefits are calculated and distributed in the future.
The Tax Consideration
Let’s talk about taxes. If you withdraw R30,000 now, it gets added to your salary for the year, which might push you into a higher tax bracket. For instance, if your salary is taxed at 31%, and that extra R30,000 bumps you up to 36%, you won’t just be taxed at the higher rate on the R30,000—you’ll pay that rate on your entire salary. This could mean a significant tax bill you weren’t anticipating.
A Collective Responsibility
Here’s where it gets personal. Imagine a colleague of yours, let’s call him Sam, who decided to withdraw funds to pay off some urgent debt. At first, it seemed like a smart move. But months later, he noticed his pension fund values fluctuating, and discussions in the office revealed that several others had made similar withdrawals. The overall stability of their fund began to waver, affecting Sam and his colleagues’ future financial security. Sam wished he had been better informed and had opted to hold off.
Your decisions regarding fund withdrawals can impact not only you but your colleagues as well. If others withdraw funds without understanding the implications, it may lead to changes that disadvantage everyone in the pool. We must educate each other to protect our collective interests.
Final Thoughts
I hope this discussion has shed some light on why accessing funds from the two-pot system might not be the best choice. If you found this information helpful, please share it with your friends and colleagues. It’s crucial that we all stay informed and prepared.
If you have questions or want to delve deeper into your options, I encourage you to reach out for guidance. Together, we can navigate these waters and make the best choices for our futures.
And if you haven’t already, hit that subscribe button for more insights. Your future self will thank you for being proactive today! Until next time, take care and stay informed!
Disclaimers:
Retirement Wellness SA is an Authorised Financial Services Provider – FSP 31609. This video provides information, not advice.
This information is not provided by or on behalf of the Government Employees Pension Fund (GEPF). We do not act on behalf of the GEPF.