Understanding the Two-Pot Retirement System
Originally published . Updated .
The Two-Pot Retirement System came into effect on 1 September 2024. It balances access to savings in an emergency with preserving money for retirement.
Your retirement savings are now split into three components:
1. Vested pot: all retirement savings accumulated up to 31 August 2024. The existing rules continue to apply to it.
2. Savings pot: available before retirement. It received a once-off seed amount from your existing savings (10% of the balance, up to R 30 000). One-third of all contributions from 1 September 2024 go into this pot.
3. Retirement pot: the other two-thirds of contributions from 1 September 2024. This pot is preserved until retirement.
Access and withdrawals
Savings pot: you can withdraw once per tax year, with a minimum withdrawal of R 2 000 and no maximum.
Retirement pot: available only at retirement, when you can take up to one-third as a lump sum and use the rest to buy an annuity that pays a regular income.
Vested pot: the previous rules apply. Access is typically allowed at retirement or resignation, subject to the fund's conditions.
Tax
Contributions to all three pots remain tax-deductible.
Withdrawals:
Savings pot: taxed as income at your marginal tax rate.
Retirement pot: the lump sum (up to one-third) is taxed according to the retirement tax tables, and the annuity income is taxed as normal income.
Vested pot: taxed in the same way as the retirement pot, depending on the option you choose.
Key points
The system applies to pension, provident and retirement annuity funds. Provident fund members who were 55 or older on 1 March 2021 are excluded unless they choose to join.
The savings pot is intended for emergencies. Every withdrawal reduces what compounds towards your retirement.
Check the tax on a withdrawal before you make it: it is taxed at your marginal rate.
The two-pot system gives South Africans access to part of their savings while preserving the rest for retirement. How it affects you depends on your balances, your tax rate and when you plan to retire, so it is worth reviewing as part of your retirement plan.
This article is general information and should not be seen as financial advice or a recommendation. Talk to a TRG adviser or a tax practitioner about your own circumstances.