Understanding the New Two-Pot Retirement System

Historically, many South Africans have found it challenging to plan adequately for their retirement. With the added stress of rising living costs and unexpected financial emergencies, prioritising your retirement savings can quickly become “out of sight and out of mind.”

A lack of accessible funds in times of need has led to premature withdrawals from retirement savings, compromising future financial security and leading to heavy penalties and taxes.

What the Two-Pot System Aims to Address:
Without a proper system in place, financial strain can be immense. At times, individuals facing emergencies have even contemplated resigning so they access their pension fund to avoid financial ruin. Early withdrawals attract high tax penalties and deplete funds meant for post-retirement life, and this cycle of financial stress and insecurity leaves many unprepared for a comfortable retirement.

Starting from 1 September 2024, South Africa will implement a Two-Pot Retirement System, introducing new opportunities for strategic retirement planning. Understanding the ins and outs of this system is essential for optimising your financial portfolio and ensuring long-term wealth preservation.

Here are some pointers on leveraging this new system to your advantage.

Understanding the 2-Pot Retirement System:
The 2-Pot Retirement System divides your retirement savings into three distinct parts:

Savings Pot:
The Savings Pot provides immediate access to funds for emergencies and short-term needs. Starting from 1 September 2024, one-third of all new retirement savings contributions will go into this pot. Additionally, 10% of your existing retirement savings as of 31 August 2024 (capped at R30,000) will be transferred to this pot on 1 September 2024, so you’ll have immediate relief should you need funds urgently.

You can withdraw from this pot once every tax year before retirement, (with a minimum withdrawal of R2000), under specific conditions. Withdrawals before retirement are taxed at your marginal tax rate (*Your own tax liability will influence the final calculation. EasyEquities will act on the directive from SARS for the total tax amount to withhold as part of your savings pot withdrawal). At retirement, this pot will be included in the lump sum retirement benefit calculation.

Retirement Pot:
The Retirement Pot secures long-term savings for your retirement years. Two-thirds of all new retirement savings contributions will go into this pot starting from 1 September 2024. Funds in this pot can only be accessed upon retirement, ensuring financial stability. This pot is taxed according to existing retirement fund rules upon retirement.

Vested Pot:
The Vested Pot contains all accumulated savings before 1 September 2024. Accessibility to this pot is subject to the existing withdrawal rules that were in place before the new system. These savings are protected and integrated into the new structure without changing the rules.

This new system balances immediate financial needs with long-term savings, providing flexibility and security for your retirement planning.

Here’s an example so you can see how it will work:

• Current RA Value (31 August 2024): R600,000
• Post 1 September 2024 Allocation:
  • Savings Pot: R30,000 (10% of R600,000, capped at R30,000)
  • Retirement Pot: R0 (starts fresh)
  • Vested Pot: R570,000 (R600,000 initial RA value - R30,000 savings pot seeding capital)

Monthly Contributions Post 1 September 2024:

• Total Monthly Contribution: R3,000
  • Savings Pot Contribution: R1,000 (one-third)
  • Retirement Pot Contribution: R2,000 (two-thirds)

Exemptions from the new 2-Pot Retirement System Rules:

While the introduction of the new 2-Pot system aims to create a balance between accessible funds for emergencies and long-term savings for retirement, certain individuals and retirement products are exempt from automatically following these new rules:

1. Already Retired Individuals
   The new rules are designed to manage ongoing contributions and the balance between immediate and long-term needs, but they would not apply if you’re already in your retirement phase.
   If you’re already retired as of 1 September 2024, your retirement savings will continue to follow the rules of the old system.
   
   
2. Certain Provident Fund Members
   Members of Provident Funds as of 1 March 2021 who were 55 at the time and are still part of the fund will not automatically participate in the new Two-Pot System, but can opt-in if they choose.

   In this case, you can continue contributing to your provident fund under the old rules, meaning you won’t be required to split your savings into the new Savings and Retirement Pots. The old rules would govern access to your provident fund under these conditions as well.

   
   

Leaving Your Employer Under the Two-Pot System
If you leave your employer under the new Two-Pot System, while you would be able to withdraw funds from your Savings Pot (subject to certain conditions and relevant tax deductions), your Retirement Pot would remain inaccessible until retirement. This means that your funds may end up being split across multiple employers.

To avoid this scenario, consider transferring your current retirement savings to the EasyRA wallet on EasyEquities, where you can house all your retirement savings under one roof.

While the new system introduces additional complexities, there are many benefits to the new Two-Pot system that can enhance your retirement savings strategy. EasyEquities offers a range of resources to guide you through this transition. With our planning calculators and educational resources, you can visualise your financial future, ensuring you make informed decisions.

Browse our FAQs regarding the new Two-Pot System to get the answers to your most pressing questions.

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