The two pot retirement system in a nutshell

From 1 September 2024 you can withdraw maximum 10% or R30 000 of your current pension fund. Minimum withdrawal R2000

From 1 September 2024 you get excess to 1/3 to new investments that you have made into a pension fund.

Everything you withdraw will be added to your taxable income and you will be taxed according to your tax rate for that year.

The remaining 2/3 will be convertible on retirement or after age 55 to a living annuity, a living annuity or guaranteed annuity.

The two-pot system will impact your rights as a member of various retirement funds, including pension funds, pension preservation funds, provident funds, provident preservation funds and retirement annuities. Under this system, all affected retirement funds are required to create two distinct “pots”, which together make up one unified fund. The system also includes a vested pot, which we describe in more detail below:

1. The savings pot: This pot, also known as the “access pot”, receives one-third of the member’s retirement contributions. Starting from 1 September 2024, members are allowed to withdraw from this pot once every tax year, provided the minimum withdrawal is R2 000 (subject to deductions such as tax and other administration fees). The pot was seeded with either 10% or R30 000 – whichever was lower of the member’s accumulated benefits as of 31 August 2024. This pot is intended to provide members with financial flexibility in emergencies.

2. The retirement pot: This pot, also known as the “preservation pot”, receives the remaining two-thirds of your retirement contributions. This pot needs to be preserved and cannot be accessed until retirement, ensuring that the majority of the member’s savings are preserved for their future.

3. The vested pot: This is your fund value before the two-pot system was introduced. No further contributions can be made to this pot apart from arrears contributions, and it remains subject to the rules in place before the system’s implementation, meaning it’s accessible according to the previous withdrawal terms. Starting from 1 September 2024, up to 10% of your vested pot (capped at R30 000) will be transferred to your savings pot as seed capital, making it accessible if needed.

Here is a practical example of how the two-pot system works: If you contribute R6 000 per month to your retirement fund, R2 000 (one-third) will go into the savings pot; R4 000 (two-thirds) will go into the retirement pot.

Together, these pots strike a balance between allowing members access to funds when necessary and preserving long-term financial security. This dual-purpose structure is aimed at improving retirement outcomes across the board.