Tax Focus

Two Pot Retirement System

Laurence Mbokwane
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In this article

What is a two-pot retirement?

 The two-pot system allows retirement fund members to make partial withdrawals before retirement while preserving a portion for retirement outcomes, eliminating the need to resign due to financial distress. This reform will be implemented on September 1, 2024.  

Who is it meant for?

The new system applies to all retirement funds, excluding old generation or legacy retirement annuity policies, funds with no active participating members, and pensioners and members of provident funds aged 55 and older on 1 March 2021 who have not chosen to be part of the two-pot system.  

Why the two-pot system?

The two-pot system supports long-term retirement savings and provides flexibility to assist fund members facing financial challenges. Members should use the savings sparingly and only in dire need. The system also protects a portion of savings for retirement purposes.  

How will it work?

The reform introduces a "savings component," a "retirement component," and a "vested component," with only the savings and retirement components eligible for contributions post-implementation. The vested component retains pre-implementation benefits with ongoing growth. Starting September 1, 2024, contributions will be split into savings and retirement components at a ratio of one-third and two-thirds, respectively.  

When person A contributes R900 per month in September 2024, R300 goes to savings and R600 to retirement. Withdrawals from savings must be at least R2,000, limited to once a tax year. Savings can grow tax-free until withdrawal. The retirement portion is only accessible at retirement, not upon resignation. Vested funds cannot receive further contributions but stay invested. In case of resignation, the vested right remains to access or transfer the funds.

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