The two-pot retirement system introduced in South Africa on 1 September 2024, is designed to offer flexibility while safeguarding long-term financial security for retirees.
South Africa’s two-pot retirement system emphasizes the critical importance of disciplined saving over premature cash withdrawals.
From the date of the implementation, all contributions to provident, pension and retirement annuity funds will be divided into three parts:
Savings Pot: One third of all contributions go into this pot, which can be accessed before retirement for emergencies.
Retirement Pot: Two-thirds of contributions are allocated here, accessible only at retirement.
Vested Pot: Contains all funds accumulated up to 31 August 2024, with R30,000 potentially used as seed capital for the savings pot.
The seed capital will be limited to 10% of the amount in your retirement fund account on 31 August 2024, subject to a maximum amount of R30 000. For you to have access to a withdrawal benefit of R30 000, the value of your retirement fund account on 31 August 2024 needs to be at least R300 000.
Any amount accessed in cash as a savings withdrawal benefit will be taxed at your marginal income tax rate, which will depend on your taxable income for the tax year, including the withdrawal amount. The retirement fund or its administrator will apply for a tax directive from the South African Revenue Service (SARS) and deduct the tax before paying you your benefit.
It is important to remember that the intended purpose of your retirement investment is to provide you with an income in retirement. While the savings component allows you access, it is prudent to guard against thinking of it as a discretionary savings account.
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