Two Pot Retirement System & Your Divorce- To Dip or Not To Dip
Starting from 1 September 2024, South Africa will introduce the Two-Pot System for retirement savings. This new system is designed to provide more flexibility for individuals saving for retirement, but it also brings significant implications for those going through or having finalized divorce proceedings. If you’re dealing with divorce, understanding how this system affects your finances is crucial.
What is the Two-Pot System?
The Two-Pot System will divide your retirement savings into two distinct "pots": 1. Savings Pot: This pot allows you to access a portion of your retirement savings while you’re still working. Withdrawals can be made once a year, giving you some financial flexibility.
2. Retirement Pot: The bulk of your contributions will go into this pot, which remains locked until you retire. This ensures that you have sufficient funds saved for your retirement years.
Impact on Finalised Divorce Matters
For those with finalised divorce agreements, the Two-Pot System may complicate matters if retirement savings were part of the settlement. Under the Divorce Act (Section 7(7)), retirement funds are considered part of the matrimonial assets and are subject to equal division. With the new system, the division of these funds could be more complex, as the Retirement Pot remains inaccessible until retirement. While the divorce settlement may have outlined how retirement savings were to be divided, the introduction of the Two-Pot System could require revisiting these agreements. It’s essential to consult with both your legal advisor and a financial expert to determine if any adjustments are necessary.
Impact on Ongoing Divorce Matters
If you’re currently going through a divorce, the Two-Pot System adds another layer of complexity to the division of assets. The Retirement Pot, which is intended to be locked until retirement, is still be subject to division under the Divorce Act, but the process for accessing and valuing these funds could be different. The Savings Pot, on the other hand, is more accessible and might be viewed similarly to other liquid assets during divorce proceedings.
However, dipping into this pot amidst a divorce could have significant financial consequences.
Consequences of Accessing the Savings Pot During Divorce
While the ability to access the Savings Pot may seem like an opportunity to ease financial strain during a divorce, it’s important to tread carefully. Any withdrawals from the Savings Pot during divorce proceedings may reduce the overall value of the retirement savings, which could negatively impact both parties in the long term.
Retirement fund administrators must be notified when divorce proceedings are initiated to ensure that no payments are made from the savings pot during the legal process. This ensures that the division of assets is handled correctly according to the legal requirements.
Moreover, since the Savings Pot and Retirement Pot are both subject to equal division under Section 7(7) of the Divorce Act, reducing the value of the Savings Pot through withdrawals could lead to disputes or the need for financial recalculations.
The Importance of Consulting with a Financial Advisor
The Two-Pot System represents a significant change in how retirement funds are managed and accessed. Whether you’re finalising a divorce or are in the midst of proceedings, it’s critical to consult with a financial advisor. They can help you understand the implications of the new system on your retirement savings and ensure that you make informed decisions that protect your financial future.
Need Legal Guidance? Contact Mary Jane Mphahlele Attorneys for expert advice on how the Two-Pot System could affect your divorce. 📞 Call Us: 015 023 0013/079 809 1300, E-mail: info@mjmattorneys.co.za🌐 Visit Us: www.mjmattorneys.co.za