south africa middle class
What you need to earn to be considered middle class in South Africa. Image: Pixabay

Home » Treasury anticipates R5 billion tax windfall from two-pot retirement system

Treasury anticipates R5 billion tax windfall from two-pot retirement system

Starting on 1 September 2024, Treasury is anticipating a tax windfall of about R5 billion from the two-pot retirement scheme.

south africa middle class
What you need to earn to be considered middle class in South Africa. Image: Pixabay

The South African government estimates a healthy two-pot retirement windfall when the system comes online on 1 September 2024, reports Daily Investor.

TRENDING: Seeing through President Ramaphosa’s job-creation lie in 2024

R5 billion in tax revenue, to be exact. This was confirmed following the National Treasury budget speech last week. For South Africans who are unfamiliar with it, this two-pot retirement windfall comes from people being able access a portion of their assets before retirement age.

TWO-POT RETIREMENT WINDFALL

Old age grant budget speech
Finance Minister Enoch Godongwana delivered a restrained Budget Speech. Image: Rodger Bosch/AFP.

This is what the National Treasury means by two-pot retirement, from September 2024, contributions will be split up. One-third is destined for the ‘savings pot’, while the remaining two-thirds go to the ‘retirement pot’ where it cannot be touched.

MUST READ: Insurance firm reveals most dangerous drivers in South Africa

Furthermore, you will be able to withdraw amounts from the savings component before retirement. However, withdrawals can only take place once a year, with a minimum withdrawal of R2 000.

STRIKING A BALANCE

two-pot retirement windfall
A group of elderly people queuing outside Mthatha Post Office to collect their old age grant money in Mthatha, Eastern Cape. Image: Hoseya Jubase

Moreover, the two-pot retirement windfall is all about preserving the contributions for peoples’ retirement. But, for some, accessing their funds to help ease a financial burden in hard times is also necessary, said Finance Minister Enoch Godongwana.

Contributions to 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, like all other income. This is how the National Treasury’s two-pot retirement windfall of R5 billion will be possible. “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,” concluded Godongwana.

NEXT READ: WHY half your tax goes to South African social welfare in 2024