The new two-pot retirement system

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The new two-pot retirement system is scheduled to be introduced on 1 March 2024. It will only be applied to retirement savings contributed from 1 March 2024 onwards. 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 one-third of their retirement savings throughout their careers to ultimately fund unexpected financial hardship. This need arose during Covid when consumers had dire financial stress and were only left with retirement funds they could not access. The reform is also to deter 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 will be divided into two “pots”.
    • The first pot is the “savings pot”, which will comprise 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 “retirement pot” will be used to secure your monthly income.
  3. All existing savings prior to the change will be allocated to a “vested pot” and will continue to be governed under the existing rules.
  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, the vested pot, namely 10% or R25,000 (whichever is lower), will be used to “seed” (start) the savings pot from 1 March 2024. This seeding provision helps establish the accessible portion of your retirement savings.

Withdrawal rules

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 Any amount withdrawn from the savings pot will be included in your taxable income for that year and taxed at your applicable marginal rate.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.

Effective date

The proposed implementation date for the two-pot system is 1 March 2024. The legislation is still in draft format and must be finalised. Consequently, until this legislation is finalised, some of the details, including the date from which it is effective, could change.

Speak to one of our Client Portfolio Managers to guide you through these changes and to ensure your financial plan is optimised to meet your retirement goals.

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