The Two-Pot System: Six FAQs Answered

While the two-pot system came into effect on 1 September 2024, we still often get questions about the workings of it.

Let’s take a closer look.

What is the two-pot system?

The two-pot retirement system is a system that allows South Africans to withdraw a portion of their retirement savings for emergencies. This system was introduced to help South Africans overcome their money emergencies without destroying their long-term financial security.

The system divides your retirement savings into two portions:

1. Savings Pot (Accessible Pot): The savings pot is the one-third of your retirement contribution that you can access in case of emergencies or money troubles. You are allowed to withdraw from this pot only once per year, and the money is subject to tax at your marginal tax rate. For example, if you have R50,000 in your pot, you can choose to take part of it or all of it at once, and the withdrawn amount will be taxed.

2. Retirement Pot (Preservation Pot): This is the two-thirds portion of your retirement contributions that will not be accessed until you have officially retired. The preservation pot aims to ensure that you have enough money to sustain yourself after retirement.

What is the impact of the two-pot system on retirement planning?

The two-pot system allows you to tap into part of your retirement savings so that you balance short-term financial needs with long-term goals.

What happens to existing retirement savings?

Any retirement contributions made before 1 September 2024 remain under the old rule, and you cannot access any portion of the money until your official retirement. The two-pot system only applies to the new contributions made after 1 September 2024.

What are the benefits of the two-pot retirement system?

• The two-pot system allows you access to your savings in times of need, which helps South Africans to avoid unnecessary debts.

• The system encourages financial security for the future by allowing you to access only one-third of your retirement savings while saving the rest for when retirement.

• Withdrawals being limited to once per year promotes financial discipline.

• The system encourages saving for the future by making the contributions tax-deductible.

What challenges does one need to be aware of?

• Allowing withdrawals from the retirement savings pot every year reduces the total retirement package amount that would have been available if your retirement savings remained untouched.

• The money is usually less than the actual amount withdrawn because of tax implications.

• There may be administrative delays when trying to access the money as administrators adjust to the new system.

What are some key considerations?

• Seek advice from either a financial advisor or your retirement fund administrator to understand how the system works, how your money will be split, and how to get a better deal out of your retirement.

• Just because you can withdraw does not mean you have to; save your withdrawal for when you are in need or when you have money troubles only. By doing so, you don’t harm your long-term savings. Remember: Not withdrawing all of your money from the savings pot means that your retirement fund will pay better when you retire.

• Create an emergency savings account to avoid relying only on the savings pot.

• Consider increasing your retirement contributions to maximise growth and offset withdrawals.