What is the two-pot retirement system?

The two-pot retirement savings system came into effect on 1 September 2024 and splits all your retirement fund contributions (after expenses) from this date into two notional pots.

Savings pot:
One third of your contributions are saved in a savings pot that you can access once in a tax year.

Retirement pot:
Two thirds of your contributions are saved in a retirement pot that you cannot access until retirement.

The two-pot system in fact introduces three pots, because what you had saved when the new system came is held in a third pot:

Vested pot:
This pot holds your savings in the fund made before September 1 2024 plus any returns earned on this. You will generally be able to do with the retirement savings in this pot what you could do with your retirement savings before 1 September 2024.

For example, you can still take it in cash if you resign, are retrenched or dismissed from an employer-sponsored fund but your savings in this pot in a retirement annuity (RA) will generally not be available until age 55.

How does the two-pot system differ from the previous system?

In addition to splitting your contributions, there are new rules about what you can withdraw and when.

In terms of the previous system:

• Generally, you could not access or withdraw your retirement savings in a pension or provident fund before retirement unless your employment was terminated and you leave the fund or you retire.
  
  
• If your employment was terminated because you resigned, were dismissed or retrenched you could withdraw your retirement savings in cash in full after tax.
  
  
• You could not access your savings in an RA fund before age 55. There are a few limited exceptions to this, such as on emigration and ill health.

Under the two-pot system:

• You can withdraw what is in your savings pot in any fund once in every tax year as long as you have at least R2 000 in the pot.
  
  
• When you withdraw from the savings pot you access savings for a cash lump sum at retirement early. The more you take early, the less you will have in cash at retirement.
  
  
• You cannot withdraw what’s in the retirement pot until retirement.
  
  
• The rules of the old system will apply to your vested pot, so you will be able to withdraw from this pot in cash in an employer-sponsored fund on resignation, retrenchment or dismissal.
  
  

When was the two-pot retirement system implemented?

The implementation date was 1 September 2024. 

What laws introduced the two-pot system?

The Revenue Laws Amendment Act was the first law approved by parliament in 2023 and signed into law giving effect to the new system and setting the implementation date.

The Pension Funds Amendment Bill was approved by parliament in May 2024. It introduced changes to the Pension Funds Act and included funds not regulated by the Pension Funds Act in the new system.

The Revenue Laws Second Amendment Bill 2024 refined and corrected  how the two-pot system works and introduced how the once-off seed capital would be calculated.

Which retirement funds will be included in the two-pot system?

The two-pot system applies to:

Pension funds including both defined benefit and defined contribution pension funds;

Pension preservation funds;

Provident funds;

Provident preservation funds;

Retirement annuity (RA) funds; and

The Government Employees Pension Fund, the Transnet and Telkom retirement funds that are governed by legislation other than the Pension Funds Act.

Which retirement funds will not be included in the two-pot system?

The only funds that will be excluded from the two-pot system are:

Older “legacy” policies, held by an RA fund, entered into before 1 September 2024 with a pre-universal life or universal life (death benefit and savings) structure;

Beneficiary funds that hold deceased members’ benefits to pay regular benefits typically to minor children; and

Unclaimed benefit funds.

Certain members may be excluded from the two-pot system including:

Members of a provident fund who were 55 years or older on March 1 2021 and are still a member of the same provident fund. These members will, by default, continue saving for retirement under the old system, but they can choose to opt into the two-pot system before September 1 2025; and

Pensioner members of funds.