Retirement

Are you Two-pot ready?

The much-talked about Two-pot system takes effect on 1 September 2024 and there are many questions circling about what this really means to you. Read on to discover all the information to empower you to live with financial confidence.

From 1 September 2024, your retirement fund monthly contributions will be allocated to two pots:

Emergency Savings pot: 33% of your net fund contributions will be allocated to this pot. You can make one withdrawal from this pot in a tax year, subject to a minimum withdrawal amount of R2 000.

Retirement pot: The remainder of your net fund contributions (67%) will go into this pot. The full balance of your retirement pot must be used to purchase a pension at retirement. No withdrawals are allowed from this pot.

All your accumulated retirement savings up to 31 August 2024 will be allocated to a third pot, the Vested pot, that remains unaffected by the Two-pot system. You will not be able to make further contributions to this pot and it will continue to grow.

What if I’m over 55?

Provident fund members who were 55 years or older on 1 March 2021 and who remained members of the fund until 1 September 2024 (referred to as members 55+) have the following choices:

Stay in the Vested pot and continue making contributions. At retirement, any amount in their Vested pot can be taken in cash (taxed) with the balance used to buy a pension. This is the default choice if no decision is made.

Move to the Two-pot system and start contributing to the new Emergency Savings and Retirement pots. They will be able to make one withdrawal per tax year from their Emergency Savings pot.

Note: This option is not available to 55+ members of a pension fund. These members will automatically participate in the Two-pot system.

Remember, emergency savings are for emergencies only

Making any withdrawals from your Emergency Savings pot not only means that you will have less money when you retire, but also less money available to take in cash. It is important to consider the long-term effects of withdrawing will have on your life goals. Keeping your investment untouched for as long as possible means that it will continue to grow and benefit from compound interest.

Let’s see what it all looks like in reality: