legislation / retirement-planning

The Two-Pot Retirement System

18 April 2024

The two-pot retirement system is part of the government’s overall retirement reform program set to improve the retirement outcomes for all South Africans. The long-term goal of a retirement fund is to prioritise saving towards retirement, but the reform program allows members to access the saving portion of their retirement benefit only for unexpected expenses and during financial distress. 

Things to keep in mind

  • You can only access your money from your savings pot, once every tax year.  
  • Any amount saved in a retirement fund will be split into a savings component and a retirement component.  
  • One-third automatically goes into the savings component and two-thirds into the retirement component. 
  • The funds in the savings component should only be used in case of an emergency, such as a medical emergency or natural disaster.  
  • The money you withdraw from the savings pot will be added to your taxable income and taxed at your marginal tax rate – and for some high earners, you are looking at being taxed 45%. 

Below you will find access to 10X brochures on the the new two-pot retirement legislation coming into affect later this year. You'll also find some frequently asked questions that we hope will clarify the affect of the new system on our clients.

What does the two-pot retirement system mean for you? 

two pot retirement living annuity retirement annuity preservation fund

Frequently Asked Questions

What is the two-pot retirement system?

The two-pot retirement system allows you to access funds allocated in a savings component (pot) for unexpected emergencies. Emergencies include family emergencies, medical emergencies, urgent home repairs, legal issues and natural disasters.

Why was the two-pot retirement system implemented?

Since only 6% of South Africans can retire comfortably, the two-pot retirement system was created to alleviate financial stress.

Who is the two-pot retirement system meant for?

The new system will apply to all retirement funds, that is, both private sector and public sector funds except for legacy retirement annuity policies, or funds with no active participating members. Pensioners and members of provident funds that were 55 years and older on 1 March 2021 who have not opted to be part of the two-pot system will also be excluded.

How does it work?

  • On 1 September 2024, two new components (also known as pots) will be created, a savings component (pot) and a retirement component.
  • Your savings component will initially be funded with 10% of your existing benefit. If it amounts to more than R30,000, only R30,000 will be transferred as seed capital* to your savings pot. This will result in three pots:

Future contributions will be split as follows: one third to a savings pot and two thirds to a retirement pot. Any investment returns earned on the retirement contributions after 1 September 2024 will accumulate in the component that the contributions are allocated into.

* Seed capital: It is a boost that will be funded from your retirement savings as of 31 August 2024. To start your savings pot, 10% of your retirement savings balance (up to a maximum of R30 000) will be used to fund the savings pot. This is a once-off allocation.

** Vested pot: It is all the savings in your retirement fund by 31 August 2024 after provision of the 10% seed capital for your savings pot. This benefit will not be affected by the new rules that apply from 1 September 2024.

Will I have to pay any administration fee to access money from the savings pot?

If you withdraw from your savings pot, you will have to pay an administration fee for every withdrawal you make from the savings pot.

Will age be a factor in accessing my funds?

Yes, only if you belong to a provident fund and were 55 or older as of 1 March 2021.

On 1 September 2024, provident fund members who were 55 years or older on 1 March 2021 and are still in the same fund, can choose to:

  • Continue to contribute to the vested component (until you retire or leave the fund) OR
  • Participate in the two-pot system and split all new contributions between savings and retirement components. You will then no longer be able to contribute to the vested component.

Can I access my money in the savings component from 1 September 2024?

Legislation allows you to access your money from your savings pot, however, keep in mind:

  • You can only do one withdrawal per tax year, i.e. 1 March to 28 February.
  • The minimum amount is R2 000.

Your vested component will provide initial capital for your savings component of 10% of your fund balance on 31 August 2024, capped at R30 000, and will be allocated to your savings component. You need a balance of at least R2 000 before you can make a withdrawal.

What happens to my funds should I die?

Your beneficiaries will be able to access the benefits in all three components as either a cash lump sum retirement benefit or a compulsory annuity or a combination of both.

What will happen when you retire after the two-pot retirement system is implemented?

At retirement, you will have access to the 3 different components:

  • Vested component – you can access pre the 1 September rules (vested and non-vested T-Day benefits)
  • Savings component – portion that a member can take up to 100% cash or annuitise
  • Retirement component – 100% of the capital in the retirement pot must be used to purchase a post-retirement product

To find out more about the two-pot retirement system, read the 10X brochure: 

10X Investments is an authorised Financial Services Provider (FSP number 28250). The content herein is provided as general information and is not intended as nor does it constitute tax, legal, investment, or financial advice as defined by the Financial Advisory and Intermediary Services Act, 2002.

The 10X Living Annuity is underwritten by Guardrisk Life Ltd.

10X Fund Managers (RF) (Pty) Ltd is an approved manager of collective investments schemes in securities in terms of Section 42 of the Collective Investments Schemes Control Act, 45 of 2002.

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