Two-pot Retirement System
Lock and secure your retirement savings with the Two-pot Retirement System. You get peace of mind with access to cash in an emergency while protecting your long-term retirement goals.
Two-pot Retirement System
Lock and secure your retirement savings with the Two-pot Retirement System. You get peace of mind with access to cash in an emergency while protecting your long-term retirement goals.
OVERVIEW
What is the Two-pot Retirement System?
Starting 1 September 2024, South Africa's retirement savings landscape will see a significant change with the introduction of the Two-pot Retirement System.
Too many South Africans cashout their retirement savings when changing jobs, leaving them unprepared for retirement and reliant on a government pension grant. To address this, and to encourage a savings culture that will help build financial security, government implemented the Two-pot Retirement System. This system divides your retirement savings into three components: vested pot, savings pot, and retirement pot.
It offers you emergency access to part of your savings while ensuring the rest is preserved for your retirement.
TWO-POT EXPLAINED
How will it work?
Vested
Pot
Before 31 Aug ‘24
10% of your retirement savings or R30,000 whichever is the lowest, will be transferred to the savings pot. The rest will be protected, and the two-pot rules will not apply to it.
There will be no vested pot for new retirement savings or funds if you start saving after 1 September 2024.
Before you retire
Your money is locked in until age 55. You cannot withdraw it before then, but we will allow access in some situations.
Being unable to work because of a permanent disability or passing away are two of them.
When you retire
You may take up to one third of the retirement savings in this pot and a lifetime tax-free limit applies.
You must invest the rest to give you an income for life and will be taxed according to legal requirements.
Savings
Pot
After 1 Sep ‘24
One-third of your retirement contributions will go into your savings pot. You can tap into this pot once every tax year, in an emergency.
Before you retire
You have access to the money before age 55 and should only use it for emergencies. The minimum withdrawal amount is R2 000. You will be taxed on the withdrawal amount and will also pay admin fees.
When you retire
You may withdraw this money when you retire. The lifetime tax-free limit applies.
Retirement
Pot
After 1 Sep ‘24
Two-thirds of your contributions will go into your retirement pot.
Before you retire
Your money is locked in until age 55. You cannot withdraw it before then, but we allow access in some situations. Being unable to work because of a permanent disability or passing away are two of them.
When you retire
You must invest the total retirement savings in this pot to give you an income for life. You pay tax on the total income you get.
Why is it important?
The money in your savings pot should be reserved for retirement and only be used in emergencies. By keeping as much money as possible in your retirement savings, you will ensure a more comfortable retirement. Any withdrawals from your savings pot will reduce the money available at retirement to secure an income for life.
The two-pot system can protect your retirement savings.
The savings pot gives you access to cash in an emergency. This can help you avoid dipping into your retirement savings too early, which can reduce the amount of money you have available when you retire.
The retirement pot is locked away until you retire. This helps protect your retirement savings from being accessed too early or lost due to financial difficulty.
Frequently asked questions
Two-pot Retirement System
Why is the government implementing the two-pot system?
So South Africans can retire more comfortably.
Government wants South Africans to become a nation of savers, but they understand that members of retirement funds have emergencies as well. For this reason, they can access some of their retirement savings in an emergency without leaving their current employer.
When will the two-pot legislation become effective?
The proposed date of implementation is 1 September 2024.
What will happen on 31 August 2024?
If you are a member of a qualifying retirement savings plan or fund, a once-off transfer of 10% or R30 000 (whichever is the lowest) of your retirement savings will be paid into your savings pot. The balance of your money will remain in the vested pot.
If you do not have any retirement savings, you will have to wait until you have saved and accumulated a minimum of R2 000 in your savings pot before you can make a withdrawal.
What will happen to my money in the vested pot?
No additional contributions will be paid into your vested pot after 1 September 2024 and the money in it will grow with investment returns.
However, if you change job, resign, are dismissed or retrenched you will be allowed to:
- Transfer your money into another fund.
- Take your money in cash. If you withdraw the money, it will still be taxed at the withdrawal lump sum tax tables.
Can I make withdrawals from my retirement pot?
No, you cannot access the money in your retirement pot. This money must remain invested until you retire. You must use it to buy a pension income plan when you retire.
What happens to the money in my savings pot if I don’t make a withdrawal?
You do not need to make a withdrawal if you do not have an emergency. The money in the savings pot will accumulate and carry over to the next year till your retirement date.
Will I earn interest on the money in my savings pot?
Yes, you will. The money in your savings pot will continue to grow and earn interest the longer it remains untouched. This means your overall retirement savings will increase over time, helping you build a more substantial nest egg.
What constitutes an emergency?
It’s important to remember that the savings pot is not meant to be used like a regular savings account. Avoid using it to fund holidays and entertainment expenses or to buy furniture. It is meant to provide for financial emergencies and should only be considered when no other options are available. These emergencies will vary for each person but may include situations like paying medical bills or covering rent to prevent being evicted.
How much tax will I pay on a withdrawal?
Before tapping into your savings pot, it’s important to remember that your withdrawal will be taxed at your marginal tax rate. These calculators could help you work out how much tax you’ll pay.
