Retirement

What is the two-pot retirement system?

The government is introducing the new Two-pot system because many South Africans are struggling financially and occasionally need access to money during emergencies.

The new retirement system is scheduled to be introduced on 1 September 2024. It will only be applied to retirement savings contributed from 1 September 2024 onwards and all savings prior to this date are not subject to these new rules.

The purpose of the new system is to give South Africans access to limited pre-retirement withdrawals under certain circumstances, throughout their careers to ultimately fund unexpected financial hardship. The reform is also to prevent people from cashing out their savings when resigning or deliberately changing jobs to access their retirement funds.

Here is a basic overview of this system:

1. Under the two-pot system, your future retirement contributions made after 1 September 2024 will be divided into two “pots”.

The first pot is the “savings pot”, which will include one-third of your contributions and can be accessed once in a tax year for emergencies.
The remaining two-thirds will form the “retirement pot”, which will be preserved until your retirement.

2. At retirement, the remaining balance in the “savings pot” will be your lump sum at retirement and the total in your “retirement pot” will be used to secure a monthly pension.

3. All existing savings prior to the change will be allocated to a “vested pot” and the current regime in effect before 1 September 2024 will apply in respect of the vested pot.

4. The savings pot allows for pre-retirement access to a portion of your retirement savings. However, it is important to note that withdrawing from this pot before retirement will reduce your lump sum benefit and leave you with only a retirement income benefit. Therefore, it is crucial to protect this pot until retirement.

5. To initiate the new system, a portion of your existing savings in the vested pot, namely 10% or R25 000 (whichever is lower), will be used to “seed” (start) the savings pot from 1 September 2024.

6. Withdrawals from the savings pot will be subject to specific rules. The minimum withdrawal amount is set at R2 000 and there is no maximum. Any amount withdrawn from the savings pot will be included in your taxable income for that year and taxed at your applicable marginal rate. Only one withdrawal is allowed per tax year.