Starting September 1st, 2024, South Africa will usher in a transformative retirement savings model—the Two-Pot Retirement System. Designed to provide individuals with more accessibility and adaptability in managing their retirement savings, this reform introduces a tri-structured approach: the Savings Pot, the Retirement Pot, and the Vested Pot. Each of these plays a unique role in balancing present financial needs with future retirement security.
At the heart of this system is the Savings Pot, which is aimed at offering short-term financial relief without compromising long-term retirement goals. From September 1st, 2024, individuals will be able to allocate a third of their future retirement contributions into this pot. Additionally, 10% of the value in their retirement fund before the start date (up to a cap of R30,000) will be transferred here. One withdrawal per year is permitted, ranging from R2,000 up to the full balance available. Importantly, any withdrawals before retirement are taxed at the individual’s marginal tax rate. When retirement is reached, this pot’s full value can be withdrawn in cash and taxed according to retirement tax tables.
Complementing this is the Retirement Pot, which houses two-thirds of all contributions made from September 1st, 2024. This pot is strictly preserved for retirement; no access will be granted—even in cases of resignation. Upon retirement, the entire value must be used to purchase an annuity, providing a consistent post-retirement income stream.
Existing retirement savings fall into the Vested Pot, which includes investments made before the new system’s implementation date, less the 10% redirected into the Savings Pot. This pot is still governed by the current Pension Funds Act and relevant fund rules. Therefore, members retain their right to make a full pre-retirement withdrawal from a Provident Preservation or Pension Preservation Fund. At retirement, a portion of this pot may be taken in cash, while the rest must be used to secure an annuity.
To better illustrate the system’s practical implications, consider two real-life inspired examples.
Mark, who continues to contribute R1,000 monthly into his fund, will see one-third of that (R333.33) go into his Savings Pot under the new system. After two years, if faced with an emergency, Mark will be able to access his accumulated savings pot—R9,600—taxed at his marginal rate.
On the other hand, Jane, who ceased contributions in May 2021, will not benefit from future contribution allocations. However, she can still access up to R30,000 from her pre-September 2024 savings pot for emergencies.
