![\"\"](\"https:\/\/www.innov8fs.co.za\/blog\/wp-content\/uploads\/2024\/05\/Allan-Gray-1024x576-1.jpg\")
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Allan Gray and Coronation have warned South Africans to carefully consider the impact of withdrawing from their savings under the new two-pot system.<\/p>\n
The two-pot retirement system is a reform that will allow retirement fund members to make partial withdrawals from their retirement funds before retirement.<\/p>\n
This reform, which will come into effect on 1 September 2024, will split retirement savings into a one-third savings component and a two-thirds retirement component.<\/p>\n
South African retirement fund holders will have access to a cash portion \u2013 the savings component \u2013 while preserving the rest for retirement.<\/p>\n
The new two-pot system aims to help South Africans in financial distress access cash without resorting to extreme measures, like resigning to access their retirement funds.<\/p>\n
Getting immediate access to a lot of money when the two-pot system kicks in on 1 September 2024 can cause reckless financial behaviour among some people.<\/p>\n
Many asset managers, including Allan Gray and Coronation, have warned South Africans that it is detrimental for them to withdraw retirement funds unless necessary.<\/p>\n
Allan Gray cautioned its members that withdrawing from their savings pot could push them into a higher tax bracket.<\/p>\n
Allan Gray\u2019s retail legal team manager, Jaya Leibowitz, said while the savings component allows people access to cash, it should not be viewed as a discretionary savings account.<\/p>\n
When people withdraw money from their retirement savings, it reduces the amount of money for retirement.<\/p>\n
Another consequence of withdrawing money is that it will be taxed and can potentially push someone into a higher tax bracket.<\/p>\n
Any amount accessed in cash as a savings withdrawal benefit will be taxed at the person\u2019s marginal income tax rate.<\/p>\n
The marginal income tax rate will depend on your taxable income for the tax year, including the withdrawal amount.<\/p>\n
The retirement fund or its administrator will apply for a tax directive from the South African Revenue Service and deduct the tax before paying you your benefit.<\/p>\n
Coronation\u2019s head of personal investments, Pieter Koekemoer, echoed Leibowitz\u2019s concerns about tax and reduced retirement money.<\/p>\n
Koekemoer said withdrawing funds from retirement savings before maturity has significant tax implications, even under the new two-pot retirement system.<\/p>\n
He urged South Africans to remember that withdrawing funds is not an obligation but merely an option to help them through tough financial times.<\/p>\n
He added that South Africans should resist the urge to withdraw funds from their retirement savings.<\/p>\n
\u201cPreferably, South Africans should not withdraw any amount from their retirement fund to prevent them from interrupting the compound process,\u201d he said.<\/p>\n
By withdrawing funds early, people will lose the tax benefits they received from the government when they contributed towards their retirement annuity.<\/p>\n
\u201cIf you wait until retirement before withdrawing your money, the preferential retirement lump sum tax tables will apply,\u201d he said.<\/p>\n
\u201cHowever, if you withdraw early, the more punitive marginal tax rates will be deducted from your withdrawal. This can significantly impact your retirement.<\/p>\n
Allan Gray and Coronation have warned South Africans to carefully consider the impact of withdrawing from their savings under the new two-pot system. The two-pot…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1758","post","type-post","status-publish","format-standard","hentry","category-innov8ions"],"_links":{"self":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1758","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/comments?post=1758"}],"version-history":[{"count":1,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1758\/revisions"}],"predecessor-version":[{"id":1760,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1758\/revisions\/1760"}],"wp:attachment":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/media?parent=1758"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/categories?post=1758"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/tags?post=1758"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}