Budget: Workers can access their pension fund from 1 September

As announced in the Budget Speech, government workers can access part of their pension fund from 1 September. 

This was revealed by Finance Minister Enoch Godongwana when he tabled the 2024 Budget Speech. 

WORKERS CAN ACCESS PART OF THEIR PENSION FUND 

During his speech, Godongwana said progress has been made on the two-pot retirement system since his last address during the Medium-Term Budget Policy Statement.

Godongwana said contributions to retirement funds will be split, with one-third going into a “savings component” and two-thirds going into a “retirement component”.

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“From 1 September, the first cash withdrawals could be made from the savings pot.

“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,” he added. 

HOW MUCH WILL EMPLOYEES BE ABE TO WITHDRAW?

According to National Treasury, contributions remain tax deductible and tax-free while growing in the fund.

“Retirement fund members can withdraw amounts from the savings component before retirement, while the retirement component will remain protected. Savings accumulated up to the implementation date, except for the initial seed capital amount, will not be affected.

“This amount will be the lower of 10 % of the fund value on 31 August 2024 or R30 000 and will be transferred from accumulated retirement savings to the savings component 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,” the department said.

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

Only one withdrawal may occur in a tax year; the minimum withdrawal amount is R2 000. The optimal option is preserving retirement savings as long as possible, as the amounts grow at compound rates and can attract lower tax rates.

HOW DID WE GET TO THE TWO-POT SYSTEM?

As previously reported by The South African, essentially, government wants one-third of all retirement savings to be place in a savings pot. This will be accessible before retirement if someone is in financial need.

This leaves two-thirds of the pension fund to be placed into a retirement fund, which can only be accessible at retirement age.

The reason for this is to provide emergency access to monies if needs be, while preserving the rest of the funds for retirement.

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