How the two-pot system can help you secure a retirement property

The 2022 Draft Revenue Laws Amendment Bill, which would implement the "two-pot" system for retirement savings mentioned in the Budget, was made available for public comment on July 29.

According to the bill, members of retirement funds will be able to access up to one-third of their pension assets once a year under the two-pot system while keeping the remaining two-thirds for retirement. This is viewed as a better alternative than resigning in order to use your pension or provident fund. While some people are sceptical about the two-pot system, some see this as a great opportunity to pay off debts or secure a retirement property. 

The general rule of thumb is that if you start saving 15% of your income when you are 28 years old, you will be able to retire comfortably at 65 using 75% of your income. The later you begin, the larger this percentage will be. However, many individuals have an increasing need for money as a result of our world's current economic climate. Investing in your retirement property now might not seem like a bad choice either, especially given the escalating expenses of food, petrol, and just about everything else. 

How does the two-pot system work?

Members of longer standing in retirement funds will have three pots: 

• the "vested pot" (amounts accumulated before the implementation date), 
• the "savings pot" (the one-third that is accessible), 
• and the "retirement pot" (the two-thirds of contributions after 1 March 2023 that have to be preserved until the retirement date).

Only one withdrawal from the savings account is permitted annually, and it must be for at least R2,000. Up to the annual authorised withdrawal date, all or a portion of the money that has accrued in the savings pot may be taken. When you reach retirement age, you have two options: either add the savings pot to the retirement pot to buy an annuity or take the entire amount as cash, which will be taxed in accordance with the retirement lump-sum tables. Compared to the marginal rate tables that apply to yearly pre-retirement withdrawals from the savings pot, which have a maximum tax rate of 45%, the lump-sum tables have more favourable tax rates (maximum of 36%).

Making the right investment decision

Saving for retirement is crucial in a nation like South Africa, where the National Treasury estimates that just 6 out of every 100 citizens would be able to enjoy a comfortable retirement. More people are turning to direct investments to try and increase their retirement savings as they realise they will need to do more to ensure a comfortable retirement. Having access to a third of your retirement fund will allow you to make investments that would have a higher return in the long run.

The competitive real estate market ensures an even better long-term investment given the range of retirement estates and communities in South Africa. Increased demand translates into higher annual capital appreciation. Your return on investment, if you choose to sell, will probably be above average.

Retirement estates and villages have topped the list of investors when it comes to finding the ideal forever home, as consumer interest in the lifestyles on offer has reached a peak. Younger buyers are becoming more aware of the investment potential that comes with buying a retirement home in its early stages.

Your retirement should be stress-free and joyful after many years of hard work. If you intend to spend your days in a safe retirement community that prioritises your well-being, then Val de Vie Evergreen is the ideal place to invest your early retirement savings. 

The picturesque surroundings of the Paarl-Franschhoek Valley served as inspiration for the estate's architecture, making it one of the safest retirement communities in South Africa. Additionally, it received the International Property Awards' Best Leisure Development in South Africa category for 2020-2021.

Interested in investing in your retirement home at an early stage in your life? Get in touch with Knight Frank today and we will assist you in making your investments grow.