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UNDERSTANDING THE RETIREMENT TWO-POT SYSTEM IN SOUTH AFRICA



The two-pot retirement system is to be implemented on September 1, 2024, in South Africa. It enables retirement fund members to make partial withdrawals from their retirement funds before retirement while preserving a portion that can only be accessed at retirement. This aims to improve retirement outcomes by providing members with the flexibility to access part of their retirement benefits if they are in financial distress, without needing to resign from their jobs.


Who is it meant for:

The new two-pot retirement system will be applicable to all retirement funds, including both private-sector and public-sector funds, with a few exceptions. It will not apply to old-generation or legacy retirement annuity policies, or funds with no active participating members (such as funds in liquidation, beneficiary funds, closed funds, or dormant funds). Additionally, pensioners and members of provident funds who were 55 years and older on March 1, 2021, and have not chosen to be part of the two-pot system will also be excluded.


How will this system work:

This system introduces three pots: the "savings pot," the "retirement pot," and the "vested pot." Only the savings and retirement pot can receive retirement contributions from the implementation date onwards. The vested pot holds retirement benefits accumulated by the member before the implementation date, with investment growth still credited to this component. Starting from September 1, 2024, retirement contributions will be divided by the retirement fund into a savings pot (1/3 of total contributions) and a retirement pot (2/3 of total contributions).


The savings pot allows withdrawals at any time, with a minimum withdrawal of R2,000 and only one withdrawal permitted per tax year. Withdrawn amounts are taxed at the individual's marginal tax rate, with no maximum withdrawal limit. The retirement pot, however, cannot be accessed upon resignation and is preserved until retirement. Retrenchment cases will be addressed in a later phase of the reform process. The vested pot, representing the retirement value as of August 31, 2024, does not accept further contributions but remains invested by the retirement fund. Upon resignation in the future, the vested right to access this component or transfer it to a preservation fund is maintained.


Verso Two-Pot Simplified March 2024
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