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Two-pot pensions: Treasury clears up tax poser | Business

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An example in a Treasury document has caused concern about the tax treatment of the so-called 'savings pot'. Treasury addressed these concerns, confirming that not accessing your savings before retirement will have big tax benefits.

The new two-pot system means South Africans will be able to cash out one-third of their future retirement savings throughout their career, while two-thirds will only become accessible on retirement. The one-third component is called the"savings pot", while the other two-thirds is the"retirement pot".

On Wednesday, Treasury confirmed that withdrawals from the savings pot upon retirement will also still be subject to lump sum rates – and won't be taxed at the much higher normal income rates that will apply to early withdrawals. But if you wait until retirement before taking a lump sum - on an amount of R2 million, you will pay an effective tax rate of only 22.4% - regardless of any other taxable income earned in the same year.

The savings in your retirement pot that are not paid out as a lump sum on retirement, will be received as a monthly annuity and taxed as individual income.

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