Two-pot retirement system explained

What is the two-pot retirement system?

The two-pot retirement system will allow South Africans to access a portion of their retirement savings for emergencies. One third of retirement funds are preserved in a savings component that can be accessed at any point in time, while the remaining two-thirds are reserved for retirement, ensuring financial security.

To access your retirement component, you must be at least 55 years of age, and the full amount must be paid in the form of a retirement annuity.

When does the two-pot retirement system start?

The implementation date for the two-pot retirement system in South Africa is 1 September 2024. All retirement contributions after this date will be split, with one third of contributions going to a savings pot and two thirds to a retirement pot. 

Why is government introducing the two-pot retirement system?

The two-pot retirement system aims to help South Africans manage financial stability and flexibility. It allows partial withdrawals for emergencies while protecting most of the savings for retirement. This aims to address past challenges where people could cash out their full pension savings when changing jobs, leaving nothing for retirement.

How does the two-pot retirement system work?

Your retirement contributions will be divided into different components, or pots.

Your accumulated retirement savings up until 31 August 2024 will go into a vested component. From 1 September 2024, one-third of contributions will go into a savings component and the remaining two-thirds will go into a retirement component.

It’s important to note that there will be a once-off compulsory transfer of 10% of your retirement savings on 31 August 2024 (capped at R30 000) to the savings component. The rest of the money will remain in your vested component.

Going forward, both the vested and retirement components will remain subject to the current restrictions, while the savings component will be accessible at any time before retirement as a “rainy day” fund.

Can I withdraw my whole pension pot?

Under the two-pot retirement system, you can only withdraw one-third of your retirement component upon retirement. The remaining balance will be distributed as fixed monthly payments. This system aims to balance immediate financial needs with long-term financial security, offering flexibility while safeguarding retirement savings.

• The savings component will be accessible at any time as an emergency fund (subject to tax).
• The vested component will continue to be governed by existing rules and restrictions, with no immediate access before retirement or resignation. Any withdrawals will be taxed as part of your normal taxable income.
• The retirement component will be preserved until retirement, where it must be paid out in the form of an annuity.

However, once you retire, if the total amount of your vested and retirement components is less than R165 000, you may withdraw the full amount.

Is GEPF included in the two-pot retirement system?

Yes, the two-pot system also covers all defined benefit funds, including the Government Employees Pension Fund (GEPF). However, the calculation methods for the GEPF's two pots may vary due to its defined benefit nature. Contributions to the savings and retirement pots are allocated based on the member's pensionable service.