Treasury: Two-pot System
Treasury proposes changes to the two-pot system
On 25 October 2023, the National Treasury and SARS presented to the Standing Committee on Finance (ScoF) the Tax Bills, including on the draft legislation that incorporates the two-pot system legislation.
The presentation included a Draft Response Document containing a summary of draft responses from the National Treasury and SARS to public comments received during consultation.
Once the responses have been considered by SCoF, they will be presented to the Minister of Finance for approval, including to approve consequential amendments to the 2023 Draft Tax Bills before formal tabling in Parliament.
We may see some announcements about the two-pot system made in the Medium-Term Budget Policy Statement on 1 November 2023. We may also see the revised Revenue Laws Amendment Bill early in November 2023.
The changes are proposed and not final.
The main proposed changes
Postponing the effective date from
1 March 2024 to
1 March 2025
The cap on the selected amount proposed to be increased from
R25 000 to R30 000
Provident fund members who were 55 or over on 1 March 2021 and who are still members of the same provident fund: to be automatically opted out of the two-pot system but can choose to opt in
Other proposed changes
- It is proposed that the seed capital will be taken proportionately from the annuitisation vested and non-vested benefits in the vested pot when it is moved to the savings pot.
- Lump sum death benefits to remain as they are. Beneficiaries can still choose to take a lump sum or an annuity, as they currently can (their choice).
- No staggering allowed for payment of savings withdrawals from savings pots.
- Exemptions from the two-pot system proposed to be permitted for: funds with no active participating members, funds in liquidation, beneficiary funds, closed funds, and dormant funds as well as pensioners.
- All amounts credited or allocated to the member’s account in the fund after implementation date will be split one-third to the savings pot and two-thirds to the retirement pot.
- Taxation of savings withdrawals from the savings pot is proposed to remain taxable at the member’s marginal rate. SARS will look at a method of notifying a tax rate to funds.
- When a member ceases tax residence in South Africa, it is proposed for pension and provident funds that:
- The vested pot can be withdrawn (subject to taxation regarding the lump sum withdrawal tax tables).
- The savings pot can be taken on exit and will be taxed at marginal rates (subject to treaty provisions); and
- The retirement pot can only be taken by the member after three years and will be taxed according to the relevant lump sum tax table (subject to treaty provisions).
- The member has three options for any amounts remaining in the savings pot on retirement:
- Take the savings pot in cash (taxed according to the retirement lump sum benefits table).
- Transfer all or some of the savings pot to the retirement component and annuitise it; and
- After taking some in cash or transferring some to the retirement pot, the member can choose to leave some amount in the savings pot and take withdrawals from it after retirement. These will, be taxed at marginal rates.
- Section 37D deductions for housing loans/ guarantees, maintenance orders, divorce orders, and misconduct at the employer will be made proportionately across the savings pot, vested pot, and retirement pot.
More information awaited
The longer period proposed will aid effective implementation and member communication. We will have to wait and see what the final version of the legislation holds for us.
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