Two-Pot Retirement System
Understand the two-pot system to get the most out of your retirement savings
What is the two-pot retirement system?
The two-pot retirement system allows you to access a portion of your retirement savings for emergencies while preserving the majority for your golden years.
As of 1 September 2024, all retirement contributions are automatically divided into two pots:
- A savings pot – One third of your retirement contributions go into the savings pot, and can be accessed before retirement, once a tax year, for emergencies.
- And a retirement pot – Two thirds of your retirement contributions will go into the retirement pot and can’t be touched before retirement. Although pre-retirement withdrawal will only be allowed under exceptional conditions.
- All the retirement savings you accumulated before the introduction of the two-pot system has been placed in a third pot. The vested pot houses all your retirement savings up to 31 August 2024. It’ll stick to the existing rules and regulations, just to keep things neat and tidy. The aim of two pots is to encourage South Africans to save for retirement while also giving them the flexibility to withdraw some of their savings in case of an emergency.
The two-pot system will apply to most fund members, with just a few exceptions. Excluded from the two-pot party:
- Legacy retirement annuity funds
- Beneficiary funds
- Unclaimed benefit funds
- Pensioners
- Members aged 55 and over as of 1 March 2021 who haven't opted in
How does the two-pot retirement system work?
You continue contributing to your retirement fund as you did before the introduction of the two-pot-retirement system. The biggest difference is that, as of 1 September 2024, your contribution is automatically split into the two new pots.
When the system was introduced, 10% of the existing retirement savings you accumulated before 1 September 2024 was taken from your existing savings (the vested pot) and moved into the savings pot, to get you started. This is called ‘seeding’ and is capped at R30 000. The remaining funds were housed in the vested pot.
You can withdraw funds from your savings pot, once every tax year, but only if you have more than R2 000 available in your savings pot, and you have to withdraw at least R2 000. But remember, you will be taxed on this money at your marginal tax rate, if you withdraw it before retirement.
Two-pot retirement system withdrawal
Saving for your retirement is important but we understand that sometimes, life happens. This is why the two-pot retirement system was introduced - to give you access to a portion of your retirement savings should you really need it.
Step 1
Consider why you are making a withdrawal, and what the effect will be on your retirement savings
Step 2
Complete the savings component withdrawal form
Step 3
Submit the form to claims@fedgroup.co.za
Applying for a two pot system withdrawal
Things to look out for when applying for a two-pot retirement system withdrawal:
- Incorrect ID or passport number lodged with your employer
- Wrong contact details (mobile or email) with your employer
- A mismatch between your bank account verification and your ID or passport number
- Brand new bank accounts - make sure you have your bank confirmation letter handy
- Incorrect or missing SARS tax number
- Unresolved disputes with SARS, leaving you without a tax directive
- SARS swooping in to claim what you owe them from your withdrawal, leaving you with less than you bargained on
- Once your decision is made and your application has been submitted, it can’t be reversed, even if the full amount is payable to SARS in respect of an IT88 or any outstanding tax
In short, the two-pot system offers some flexibility, but it comes with its own set of rules and timelines, so be prepared and plan ahead. And remember: just because you can access a portion of your retirement savings, doesn’t mean you should.
Why was this new system implemented?
The two-pot retirement system is designed to give retirement fund members a bit of financial breathing room during tough times without requiring them to resign from their jobs in order to access their savings.
Remember: accessing your retirement funds early not only means you have less available at retirement, it also impacts your tax-free savings portion, and the ability of your retirement funds to benefit from compound interest and grow at a rate that will ensure you have enough to retire comfortably.
We spoke to industry experts about these considerations and more, in our two-pot podcast.
Speak to us about the two pots system
Not sure how to navigate the new two-pot retirement system? Speak to our team and we’ll walk you through it.
FAQs – answered
We’ve answered the most common questions we get about the two-pot retirement system to help you get the most out of your retirement savings.
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