Looking At Two-Pot Since Launch

The new tax year began on March 1, 2025, marking six months since the launch of the two-pot system. This system, introduced on September 1, 2024, was designed to offer flexibility while ensuring long-term preservation of retirement savings. Each tax year, members are allowed one withdrawal from their savings pot, starting at a minimum of R2,000.

Since its introduction, the two-pot system has significantly impacted retirement fund administrators. Like many providers, EasyRetire has seen an overwhelming number of withdrawal requests. In the first five months following implementation, the South African Revenue Service (SARS) reported a staggering 2.6 million applications, with a total payout of more than R43 billion.

The Risk to Retirement Savings

A growing concern is that frequent withdrawals could prevent members from achieving an adequate retirement replacement ratio. The replacement ratio is the percentage of an individual’s pre-retirement income that is replaced by their retirement income. In South Africa, the recommended replacement ratio is 75%. This means that if you earned R20,000 per month before retirement, you should ideally have R15,000 per month from your pension and other savings to maintain your lifestyle. Excessive withdrawals from the savings pot could lead to an inadequate retirement income.

Key Clarifications for Members Considering Withdrawals

To help members make informed decisions, here are a few key points to keep in mind:

• You can only access the savings component, not your entire retirement fund. The savings pot allows for one withdrawal per tax year, with a minimum amount of R2,000 and no maximum limit.
• There is no fixed annual withdrawal limit of R30,000. Members can withdraw any amount above R2,000 from the savings component once per tax year.
• If your savings pot contains less than R2,000, you must wait until your contributions reach the minimum threshold before withdrawing.
• The savings component is intended for emergencies, not lifestyle enhancements. Withdrawals are taxed at your marginal tax rate to discourage unnecessary use.
• If you resign, you can take your pre-September 2024 savings (vested pot) in cash. You can also access your savings pot, subject to annual withdrawal limits and tax. However, the retirement pot, comprising savings accumulated after September 1, 2024, remains locked until retirement.
• Keeping your savings invested can enhance long-term growth. Members are not required to withdraw from their savings pot each year. Allowing savings to remain invested may lead to increased value over time.
• The two-pot system may not benefit those nearing retirement as much as younger individuals. With limited time left for savings to grow, the impact may be minimal. Those close to retirement should carefully assess whether accessing their savings component is the best option.
• If you have withdrawn funds during past job transitions, your overall retirement savings could be lower. Consider delaying additional withdrawals to maintain financial security in retirement.

How Should Members Approach This System?

The Two-Pot System is designed to help members strike a balance between financial security and emergency liquidity. Here’s how to make the most of it:

• Only withdraw when absolutely necessary: Since the Savings Pot is limited, members should avoid unnecessary withdrawals to ensure some liquidity remains available for emergencies.
• Increase voluntary contributions: By contributing more, you can build a larger Savings Pot for emergencies while still growing your Retirement Pot.
• Understand the tax implications: Before making a withdrawal, ensure you are aware of how it will affect your tax liability.
• Preserve Long-Term Goals: While immediate access is helpful, over-reliance on withdrawals could compromise your retirement savings.

While access to the savings pot can provide relief in emergencies, frequent withdrawals may undermine long-term financial stability. Before making any withdrawal decisions, evaluate how it might impact your retirement goals. We encourage members to be strategic about their retirement savings and make informed decisions that align with their long-term financial well-being.

Further Information on the Two-Pot System:

• Key Benefits of the Two-Pot Retirement System
• Challenges of the two-pot retirement
• What the New “Two-Pot” System Means For Your Retirement Fund Savings

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