Two-pot, preservation funds

NEW REGIME: ONLY NEW CONTRIBUTORS TO RETIREMENT SYSTEM HAVE TWO COMPONENTS

- Liesl Peyper

It has been seven weeks since the implementation of the two-pot retirement system and there are still misconceptions and misunderstandings that need clarifying, such as how preservation funds will function under this new regime.

Moneyweb asked two technical experts in the retirement industry to help explain what changes and what stays the same.

Three pots for existing fund members

Although the new retirement framework has been dubbed the "two-pot" system, only new contributors to retirement funds have two components. In other words, people joining a retirement fund for the first time on 1 September, with no previous retirement saving contributions.

Existing retirement fund members saw their retirement fund savings split into three components or "pots":

> A vested pot containing the retirement savings up until 31 August this year (excluding the amount allocated to seed capital in the savings pot);

> A savings pot featuring one-third of contributions from which one withdrawal may be made every tax year (including the seed capital allocated on 1 September); and

> A two-thirds retirement pot that must be preserved and then annuitised upon retirement.

What about preservation funds