The two-pot retirement system
Understanding the two-pot system will help you get the most out of your retirement savings
The two-pot system will apply to most fund members, with just a few exceptions
The aim of two pots is to encourage people to save for retirement while also giving them the flexibility to withdraw some of their savings in case of an emergency.
How does the two pot system work?
From 1 September 2024, you will continue contributing to your retirement fund as normal. The biggest difference is that your contributions will automatically be split into the two pots.
10% of the existing retirement savings you accumulated before 1 September 2024 will be taken from your current savings (the vested pot) and moved into the savings pot to get you started. This is called ‘seeding’ and is capped at R30 000. The remaining funds will be housed in the vested pot.
You will be able to withdraw funds from your savings pot, once every tax year, but only if you have more than R2 000 in your savings pot, and you can only withdraw more than R2 000. And remember, you will be taxed on this money at your marginal tax rate, if you withdraw it before retirement.
What is the two-pot system?
Starting 1 September 2024, SA’s two-pot retirement system allows you to access a portion of your retirement savings for emergencies while preserving the majority for your golden years.
The objective?
The answer is twofold: to assist people in coping with challenging financial situations, and to help them save more for retirement.
How the two-pot system works:
Your contributions are automatically split into two pots:
1. Savings Pot: 1/3
For emergencies only: you can make 1 withdrawal of at least R2 000 per tax year, provided your savings pot has at least R2 000 available. Remember, withdrawing now means less for retirement.
2. Retirement Pot: 2/3
Compulsory preservation of majority of your retirement contributions. Locked until you retire, ensuring you have funds for the future.
Be two pot savvy:
Resist dipping into the Savings Pot because you will be taxed as per your marginal tax bracket when making withdrawals. The Retirement Pot is your future lifeline, protect it.
When can you withdraw?
Transfer of funds (seeding) of the Savings Pot happens after 31 August 2024. Stay updated on system and regulatory changes via our website.
Who doesn’t qualify?
Legacy retirement funds, beneficiary funds, unclaimed benefits, pensioners, and those over 55 as of 1 March 2021 (unless they opt in).
Withdrawal process:
Ensure your details and SARS tax number are up-to-date to avoid delays when making withdrawals. Withdrawal requests are final, think twice before submitting!
Seed capital and the vested pot withdrawal limit
But before you get too excited and start eyeing the calendar, a word of caution: patience is key. Don’t expect to see money magically appear on 1 September for your next big spend.
Here’s why: seeding calculations can only kick off after the end of August, using the values from that month. The law allows for these calculations to be done after the system is up and running, not necessarily on the exact start date.
These seeding calculations — essentially the number-crunching that divvies up your current savings into the different pots — depend on how much cash you’ve already got saved in your retirement account and what it’s worth in the market. This could take anything from a few working days to several weeks, depending on the specific rules of your retirement fund.
Why was this new system implemented?
It’s designed to give members a bit of financial breathing room during tough times without requiring them to resign from their jobs in order to access their savings. In short, although it offers short-term financial breathing room for those who drastically need it, the two-pot pension system should be viewed as a tool to help you take control of your financial future.
Remember: accessing retirement funds early not only means you have less available at retirement, it also impacts your tax-free savings portion, and the ability of your retirement funds to benefit from compound interest and grow at a rate that will ensure you have enough to retire comfortably.
We spoke to industry experts about these considerations and more, in our two-pot podcast.
Watch it on YouTube or
Here’s the fine print:
Who qualifies for two pot system in South Africa?
Excluded from the two-pot party:
• Legacy retirement annuity funds
• Beneficiary funds
• Unclaimed benefit funds
• Pensioners
• Members aged 55 and over as of 1 March 2021 who haven't opted in
How to apply for the two-pot retirement system
Things to look out for when applying for a withdrawal:
• Incorrect ID or passport number lodged with your employer.
• Wrong contact details (mobile or email) with your employer, leading to unsuccessful two-step verification.
• A mismatch between your bank account verification and your ID or passport number.
• Brand new bank accounts—make sure they’ve been around for at least three months before applying.
• Incorrect or missing SARS tax number.
• Unresolved disputes with SARS, leaving you without a tax directive.
• SARS swooping in to claim what you owe them from your withdrawal, leaving you with less than you bargained on.
In short, the new system offers some flexibility, but it comes with its own set of rules and timelines, so be prepared and plan ahead. And remember: just because you can access a portion of your retirement savings, doesn’t mean you should. Consider setting up a rainy day fund for emergencies – your future self will thank you!