Two Pot Retirement Update - What to do come 1 September 2024

Summary

In this informative video, the Financial Bunny, Niket Masile, discusses the upcoming two-part retirement system reform in detail. Set to be implemented on September 1, 2024, the reform allows for partial withdrawal of retirement funds annually, with a cap on the amount. Masile emphasizes the importance of understanding the changes, consulting with financial advisors or fund administrators, and being aware of tax implications and minimum withdrawal thresholds. He also highlights the need for active instruction to initiate withdrawals, as they will not happen automatically.

Takeaways

• 📅 The two-part retirement system reform comes into effect on the 1st of September 2024.
• 👴 This reform is particularly important for those nearing retirement or those who belong to employer-sponsored pension funds.
• 💬 Minister Enoch Gog Guana's budget speech provided updates on the retirement reform, sparking discussions and jokes about 'go get your money' on the 1st of September.
• 📈 The reform allows for partial withdrawal of funds from retirement funds, a change from the previous system where funds could only be withdrawn upon changing jobs or retiring.
• 🚨 It is crucial to understand the specifics of the reform, especially for those with vested retirement funds, and to consult with HR, financial advisors, or fund administrators.
• 🔄 The government will seed the savings component of the new system using 10% of the vested funds up to a cap of 30,000 Rand.
• 💰 A minimum of 2,000 Rand in the savings component is required to make a withdrawal, and the withdrawal is not automatic - instructions must be given.
• 💹 Tax implications are significant when withdrawing funds, and the actual amount received will be less than the expected amount due to taxation and potential fund fees.
• 🔄 For the next financial year, contributions will be split with one-third going to the savings component and two-thirds to the retirement component.
• 🚫 The retirement component cannot be touched until retirement, ensuring a secure financial future post-employment.

Q & A

What is the two-part retirement system being discussed in the video?

The two-part retirement system is a retirement reform that allows individuals who are part of a retirement fund to partially withdraw funds annually. It consists of a savings component and a retirement component, with the latter being inaccessible until retirement.

When does the two-part retirement system go into effect?

The two-part retirement system is set to go into effect on the 1st of September 2024.

What was the reaction in Parliament when the implementation date was mentioned?

There was a buzz in the room, indicating a significant interest and anticipation for the changes the two-part retirement system would bring.

What should individuals do if they belong to an employer-sponsored pension fund?

They should speak to their HR department and ask to be connected to the pension fund administrator for guidance on how the reform affects them.

What is the role of a financial advisor in this context?

For those contributing to a retirement annuity independently with the help of a financial advisor, it is recommended to consult with that advisor or contact the company holding their RA for assistance in understanding the reform's implications.

What is the maximum amount one can withdraw from their retirement fund under the new system?

There is a cap on the withdrawal amount. It is 10% of the funds up to a maximum of 30,000 Rand, regardless of the actual percentage calculated.

How does tax affect the withdrawal from the savings component?

Withdrawals are subject to tax, which might reduce the expected amount received. It is important to factor in tax implications when planning for withdrawals.

Is the withdrawal from the savings component automatic?

No, the withdrawal is not automatic. Individuals must provide explicit instructions to their pension fund administrator to initiate the withdrawal.

What is the minimum balance required in the savings component to allow a withdrawal?

There must be a minimum of 2,000 Rand in the savings component for a withdrawal to be permitted.

What happens to the vested component of an individual's retirement fund?

The government will use funds from the vested component to seed the savings component, up to the allowed limit of 30,000 Rand.

How will the two-part retirement system affect individuals with significant contributions to their retirement fund?

Even with significant contributions, there is no clear maximum limit on how much can be accumulated in the savings component. However, withdrawals from the savings component will be subject to tax and potential fees.

Outlines

00:00

📢 Introduction to the Two-Part Retirement System Update

Niket Masile, also known as the Financial Bunny, introduces the video by discussing the updates on the two-part retirement system as presented by Minister Enoch in the budget speech. The retirement reform is set to take effect on the 1st of September 2024, which has generated significant interest and discussion. The video emphasizes the importance of understanding the new system, especially for those in employer-sponsored pension funds or retirement annuities, and advises viewers to consult with HR, financial advisors, or pension fund administrators for clarity. It is clarified that the video's content does not constitute financial advice, and viewers are encouraged to seek professional guidance due to the upcoming changes.

05:00

💰 Explaining the Two-Part Retirement System and Withdrawal Caps

This paragraph delves into the specifics of the two-part retirement system, highlighting that it allows for partial withdrawal of retirement funds once a year. It contrasts the new system with the previous rules, where funds could only be withdrawn upon changing or leaving a job. The government's intention behind the reform is to provide access to retirement funds in emergencies without leading to financial ruin. The paragraph explains that there are two components to the system: the savings component, from which funds can be withdrawn, and the retirement component, which cannot be touched until retirement. It also introduces the concept of a vested component for those already in a retirement fund. The video outlines the rules for withdrawals, including a cap of 30,000 Rand regardless of the 10% calculation from the vested amount. It warns viewers about the impact of taxes and fees on withdrawals and the need for explicit instructions to execute a withdrawal since it will not happen automatically.

10:01

🤔 Clarifications and Future Considerations for the Two-Part Retirement System

The final paragraph addresses uncertainties and further considerations for the two-part retirement system. It discusses the seeding of the savings component using funds from the vested component and the changes in contribution allocation starting from the 1st of September 2024, with one-third going to the savings component and two-thirds to the retirement component. The video raises questions about the lack of clarity on maximum withdrawal limits in the future and reiterates that all withdrawals will be subject to tax. The speaker encourages viewers to have conversations with their retirement fund administrators to understand the steps they need to take, emphasizing that the reform does not require resignation from the retirement fund but rather a transition into the new system.

Keywords

💡Financial Bunny

The Financial Bunny is the nickname of Niket Masile, the speaker in the video. This term is used to identify the presenter and establish credibility as a source of financial advice. It relates to the main theme of the video as it suggests a focus on financial matters and the idea of 'hopping' towards financial security, which is central to the discussion about retirement reforms.

💡Two-Part Retirement System

The Two-Part Retirement System is a retirement reform that allows individuals to partially withdraw funds from their retirement funds. It is a key concept in the video as it is the main subject of discussion and reform being updated. The system is designed to provide more flexibility for individuals to access their retirement savings in case of emergencies or financial needs, while still maintaining a portion of funds for retirement.

💡Retirement Reform

Retirement Reform refers to changes or updates made to the existing retirement system to improve or adapt it to the current economic and social conditions. In the context of the video, the retirement reform is the implementation of the Two-Part Retirement System, which is set to take effect on the 1st of September 2024. This concept is crucial as it directly affects individuals' financial planning for their retirement years.

💡Pension Fund Administrator

A Pension Fund Administrator is the individual or entity responsible for managing the retirement funds of employees, ensuring that the funds are invested and distributed according to the rules of the retirement plan. In the video, the speaker advises viewers to contact their Pension Fund Administrator to understand how the retirement reform affects their specific situation and to get guidance on the changes.

💡Retirement Annuity

A Retirement Annuity is a financial product where an individual contributes to a fund with the aim of accumulating savings for retirement. It is one of the components discussed in the Two-Part Retirement System, where individuals can contribute to a retirement annuity and withdraw a portion of it under the new reform.

💡Vested Component

The Vested Component refers to the portion of an individual's retirement fund that they have earned the right to withdraw, typically because they have met certain conditions such as years of service or age. In the context of the video, the government will use funds from the vested component to seed the savings component under the new retirement system.

💡Savings Component

The Savings Component is a part of the Two-Part Retirement System where individuals can contribute and from which they can withdraw funds once a year. It is designed to provide more immediate access to savings for individuals while still maintaining a long-term retirement fund.

💡Retirement Component

The Retirement Component is the part of the Two-Part Retirement System that individuals cannot withdraw from until they retire. It is meant to ensure that individuals have a secure financial future after retirement. This component is separate from the savings component and is designed to accumulate funds for long-term retirement needs.

💡Tax

Tax refers to the mandatory financial charge imposed by the government on income, withdrawals, and other financial transactions. In the context of the video, the speaker warns viewers to factor in tax implications when withdrawing from their savings component, as withdrawals are taxable and can reduce the amount received.

💡Automatic Withdrawal

Automatic Withdrawal refers to the process where funds are withdrawn from an account without the need for manual intervention by the account holder. In the video, the speaker clarifies that withdrawals from the savings component will not happen automatically and that individuals must give explicit instructions to their pension fund administrator to initiate the withdrawal.

💡Opt-In

Opt-In is a term used to describe the action of explicitly choosing to participate in a particular system or service. In the context of the video, some individuals of a certain age may need to opt-in to the Two-Part Retirement System to benefit from the new reform.

Highlights

The introduction of the two-part retirement system by Minister Enoch Gong Guana.

The retirement reform comes into effect on the 1st of September 2024.

The importance of understanding the reform before making any decisions regarding retirement funds.

The necessity to speak with HR or financial advisors for those in employer-sponsored pension funds or RA holders.

The potential problems foreseen when people reach retirement or the implementation date of the reform.

The two-part retirement system allows for partial withdrawal of retirement funds once a year.

The government's intention to prevent individuals from spiraling into poverty due to inaccessibility of their retirement funds.

The distinction between the savings component and the retirement component of the two-part system.

The vested component for those already part of a retirement system or fund.

The government seeding the savings component using funds from the vested part of retirement funds.

The cap on the withdrawal amount, which is 30,000 Rand regardless of the percentage of the vested amount.

The impact of taxes and fees on the withdrawal amount, potentially reducing the expected sum.

The requirement for a minimum of 2,000 Rand in the savings component to allow for a withdrawal.

The non-automatic nature of the withdrawal process, which requires explicit instruction from the account holder.

The ongoing contributions to the retirement fund, with one-third going to the savings component and two-thirds to the retirement component.

The tax liability on withdrawals from the savings component post-1st September 2024.

The need for individuals to have a conversation with their retirement fund administrators to understand the steps they need to take.

Transcripts

hi guys my name is niket masile I am

also known as the financial bunny

welcome to the financial bunny TV today

I want to do a video that is an update

to a video that I did a couple of months

ago it's on the two-part retirement

system right now that Mr Enoch or

Minister Enoch gong Guana has tabled the

budget speech it's very very important

to know that he has given updates on the

two-part retirement system and one that

is absolutely important is when this is

retirement reform is going to take place

right so it goes into effect on the 1st

of September 2024 and now there was a

whole buzz in the room or is it a plary

room there in Parliament when he

mentioned this date and he kind of

casually made a joke about go get your

money when the 1 of uh September starts

now it's important to understand before

you make any decisions to get a better

understanding of what is actually going

on and most importantly if you belong to

a pension fund that is part of a

employer sponsored pension fund go speak

to HR and ask them to connect you to the

pension fund administrator if you are an

RA holder and you're contributing to a

retirement annuity this is probably done

on your own with a financial advisor go

and speak to that financial advisor or

call the company who holds your ra and

ask them for a specialist to help you in

understanding what this reform actually

means for you and of course if you are

from a legacy Provident fund you also

want to have this conversation with them

because I think it's absolutely crucial

to understand I can foresee already

there's going to be huge problems when

people do get to either retirement or

when the 1st of September Comes in 2024

right um but remember none of my videos

constitute as Financial advice if you

are looking for financial ADV do speak

to somebody especially because this

reform is going to change certain things

and I might not be able to cover some of

those things in this specific video I

would suggest just pick up the phone

type an email have a conversation so

let's get into what it is so if maybe

perhaps you kind of missed the the first

video what is the two-part retirement

system basically it's a retirement

reform that has come in to allow people

in this country who are part of a

retirement fund to partially be able to

withdraw funds now in the olden days the

only way you could do this is if you're

changing jobs or if you are retiring

from a job you would be able to withdraw

portion of your retirement fund right or

funds that are in your retirement fund

now the government is making it

something that you can do once a year

once only once a year are you able to

withdraw funds from a retirement fund

right now it's very very important to

understand what's to come right after I

say this because a lot of people think

oh yes Mom I'm going to withdraw

everything from my retirement fund no

sweetie you can't withdraw everything

from your retirement fund but we'll get

to that so let's stick to what is the

two-part retirement system basic

basically it comes from the fact that

some people only have their retirement

funds as their savings and the

government is saying well look if an

emergency does arise we don't want

people to go into a spiral of

potentially going into being broke or

poverty simply because they cannot

access funds that legally belong to them

right now there's obviously pros and

cons to bringing a reform like this

however it's not just about withdrawing

funds there is also a pot and that's why

it's for the two-part retirement system

there's a pot where you're going to

contribute your retirement funds which

you cannot touch you cannot touch up

until retirement so whether you are

changing jobs whether you are resigning

you can't touch that part and that's

called the retirement component right so

there are two parts that we're going to

talk about there's going to be the

savings component there's going to be

the say retirement component and then

there's one that is going to obviously

come up and that's called the vested

component the reason why many people

might have the vested component is

because they already belonging to a

retirement system or retirement fund

rather right so it means that if you are

right now as we speak today have some

funds that you are that are in a

retirement fund whatever shape the

retirement fund is in you essentially

would have what is called a vested pot

now if you want to go and withdraw come

1 of September what is going to happen

is the government is going to seed your

parts right using the funds from your

vested part so whatever is currently

existing in your retirement fund they're

going to use those funds to seed the

savings component but how much so let's

say for instance you have 100,000 rent

the government is saying 10% of that but

it's 10% but up to 30,000 so let's say

for instance you've got 100,000 now

100,000 10% of that is 10,000 great you

can withdraw the entire amount out

however let's say you've got a million

and your 10% is 100,000 you can't

withdraw the entire 100,000 you can only

withdraw up to 30,000 rent so there's a

cap into how much you can withdraw now

another very important thing to remember

there's a little thing that we call tax

so when you do make that withdrawal

please Factor tax in because it's going

to also show show you Flames if you are

not ready for it you may be expecting

10,000 Rand it gets taxed and then also

you might find the pension fund

administrator is going to Levy some fees

on that and then all of a sudden you're

not getting 10,000 run into your bank

account and you are upset again another

thing is you've got to give the

instruction right to withdraw so it

doesn't happen automatically I think a

lot of people think that the withdrawal

is going to happen automatically the

withdrawal is not going to be happening

automatically it is only going to happen

if you do to give them an instruction

the other thing is you've got to have

more than 2,000 Rand in the savings

component for you to be able to withdraw

so if let's say you have a current

retirement fund and it's sitting at

5,000 Rand and you want to withdraw 10%

of that which is 500 Grand they're not

going to allow you to do that so it's

very important to know that there must

be a minimum amount with 2,000 Rand for

you to be able to withdraw now what I'm

finding isn't very clear and I'm still

looking to find information about this

is what happens going forward so this

year the seeding is up to 10% or 30,000

Rand but let's say you go into next year

and now what happens is or pass the 1st

of September 2024 what happens is when

you do make your contribution so

whatever is deducted from your paycheck

um when you are now uh getting your

salary whatever gets deducted onethird

of it goes into the savings component

and the other 2/3 go into your

retirement component right very very

important but now some people have an

incredible or significant amount of

money that they do contribute to their

pension fund or to their retirement fund

which then means that going into next

year's Financial year you may find

yourself in a situation where you've

accumulated over 100,000 Rand in your

savings component the question we're

still asking is and I haven't gotten

Clarity on this but I've read a lot of

the uh content and it doesn't seem to

say anything about a maximum limitation

there's a minimum limitation of 2,000 R

but there's no maximum limitation of how

much you will be able to withdraw but

once again I must me very clear on this

whatever it is that you're going to

withdraw going forward past the 1st of

September 2024 is tax liable so you will

pay tax on whatever it is that you are

withdrawing and this is absolutely

important because the issue of tax

always gets people riled app because and

I'll give you an example there was a

mine that promised people pay out of a

certain amount of money and when the the

amount hit their bank account because

people were expecting a certain amount

let's say you were expecting 100,000

Rand and it comes now as 80,000 Rand

you're going to go mad you know why

because a lot of us do this weird thing

of planning and budgeting for money that

has not been received in our bank

accounts as yet but we know it's coming

so that that is always why it is such a

stress when you get the money and the

tax has been levied on it and you don't

get the amount that you are expecting so

absolutely lutely lutely crucial what

the top things that to remember from

this video One the reform is going to

kick in on the 1st of September 2024

right in after this kicks in your

savings component will be seeded by

money that's coming from your vested so

this is money from your legacy or your

previous uh uh retirement fund that

you've got 10% of whatever it is that

you've got up to 30,000 R so if you've

got more than 30,000 r as your 10% the

10 the 30,000 is the only amount that's

going to seed it into your savings

component going forward whatever you

contribute towards your retirement oneir

of it will go into your savings

component and the other 2/3 will go into

your retirement component you are

allowed to withdraw from your savings

component once a year but youve got to

have a minimum amount of 2,000 R right

and then you cannot withdraw from your

retirement uh uh uh component because

you're not allowed to up until you

decide to retire I'm hoping this was

clear enough for you to understand what

are some of the changes that have come

with the two- Point retirement system as

I mentioned there are obviously other

interpretations that you've got to take

into consideration um considering what

type of um previous retirement fund you

were in there people who were previously

in a Provident fund and then when all

pro all all retirement kind of became

the same in terms of withdrawals the

money so there's different types of

people there are people who have

different types of retirement especially

like the older generation they would

have like money that was part of a

Provident fund before the new rules came

in of retirement funds in terms of all

of them being the same and then they've

got money from now this previous

retirement uh fund that is before the

two-part system then they'll still

contribute towards the two-part system

so there's various ones I do know there

are certain people of a certain age who

do need to opt in into the two-part

retirement system so that is why I'm

encouraging you to have a conversation

do not leave it to chance do not assume

that you're going to automatically Ally

get money on the 1st of September it's

not going to happen I just want you to

please go have a conversation with

whoever is the administrator of your

retirement fund whatever shape form it

comes in whether it's a pension fund an

RA a a a Provident fund go have the

conversation so you can be clear on what

steps you need to take please remember

you do not need to um to to to to to

what's it resign from your retirement

fund is just a matter of how you're

going to be moved into the the new

reform I will leave it at that thank you

very much for tuning in and I'll see you

guys on the next one