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The two-pot system will bring huge changes to how South African retirement funds operate. the changes also include what happens when one resigns.
The system allows South Africans to access a portion of their retirement funds, while also ensuring long-term financial security.
Professor Elda du Toit, Professor of Financial Management at the University of Pretoria, says although it is called the “two-pot system”, it is actually a “three-pot” system.
She says the three pots are the vested pot, retirement pot and the savings pot.
Du Toit says you will have an option on what to do with all three pots when you leave your job before retirement.
When it comes to the vested pot, the money can be taken out, transferred to a new fund, or left paid up in the existing fund.
The retirement pot must be transferred to the next retirement pot in a new fund or left paid up in the retirement pot of the existing fund.
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When it comes to the savings pot, a withdrawal can only be made if the person has not already withdrawn from the pot that year. If a withdrawal was already made in that year, the money in the pot must be transferred to the savings pot in a new fund or left in the savings pot in the existing fund.
The two-pot retirement system is expected to come into effect from 1 September 2024.
Du Toit says the vested pot will contain all your retirement savings before 1 September 2024. The retirement pot makes up at least two-thirds of the savings, and this portion will remain preserved until retirement.
The savings pot allows for limited withdrawals before retirement. A portion of your retirement savings will be moved to your savings pot.
“This includes a one-time transfer of 10% of your total retirement savings as of 28 February 2025, up to a maximum of R30 000,” she says. Also, one-third of all future contributions to your retirement fund will go into your savings pot.
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Members can then withdraw these funds under specific conditions without needing to resign from their jobs or cash out their entire pension fund. At this stage, the smallest amount you can withdraw is R2 000. If you have less than R2 000 left after taking money out, you can withdraw whatever is left in the pot. The most you can withdraw in a year is R25 000, if you have enough money in your savings pot to cover it.
One of the benefits of the system is it ensures financial security by preserving two-thirds of the funds until the member reaches retirement age. “This preservation helps guarantee that individuals will have funds to support them during their retirement years, helping them build a stable financial future,” says Du Toit.
As much as the system offers benefits, there are some disadvantages to consider. Withdrawals from the savings pot will be subject to taxation. This means that the amount withdrawn will be added to the member’s taxable income for the year and taxed accordingly.
“For instance, if a member in the 25% tax bracket withdraws R20 000, they would need to pay R5 000 in taxes, leaving them with only R15 000. An important implication to note is that the withdrawal can potentially put a person into a new tax bracket, resulting in even higher taxes than would normally have been paid on one’s income.”
Du Toit says though it might seem like a good idea to use withdrawals from the savings pot to pay off debt, it can compromise your future financial stability. “It is important to weigh the immediate relief of debt repayment against the potential long-term impact on your retirement funds, as withdrawing money now means less growth and interest accumulation over time.”
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