South Africa’s new Two-Pot Retirement System effective from 1 September 2024 splits your retirement contributions into two parts: one for long-term retirement and one for short-term emergencies. This reform aims to balance financial flexibility with retirement security.

The Two-Pot System is a major reform to South Africa’s retirement savings framework. It was introduced to help workers access part of their retirement savings during times of financial distress without needing to resign from their jobs, which was a common but risky workaround under the old system.

How Does It Work?

From 1 September 2024, all new retirement fund contributions are split into two components:

• Savings Pot (One-Third)

This portion is accessible before retirement. You can make one withdrawal per tax year, with a minimum amount of R2,000. It’s designed for emergencies or short-term financial needs. Any balance left at retirement can be taken as a lump sum or used to buy a retirement income product.

• Retirement Pot (Two-Thirds)

This portion is preserved until retirement. At retirement, it must be used to purchase a retirement income product such as a living annuity or a guaranteed life annuity. You cannot access this pot early.

• Vested Pot

This includes contributions made before 1 September 2024. These follow the old rules and can still be accessed in full upon resignation or retirement, subject to tax.

The system applies to most retirement fund members, including those in pension and provident funds. However, members aged 55 or older on 1 March 2021 who haven’t opted into the new system will remain under the old rules.

Important Considerations

• Withdrawals from the Savings Pot are taxed, and frequent withdrawals can erode your long-term savings.
• Financial advisors recommend caution to only withdraw if absolutely necessary, as it reduces your retirement cushion.
• The system encourages better financial planning by offering access without forcing resignation.

The Two-Pot System is a progressive step toward balancing short-term financial relief with long-term retirement security. It empowers South Africans to manage emergencies without sacrificing their future, but it also requires discipline and informed decision-making.