Q Who is the Two-Pot Retirement System for?
Any South African who is a member of a pension fund, a provident fund, a retirement annuity or a preservation fund.
Q When will the Two-Pot Retirement System be implemented?
The Two-Pot Retirement System will be implemented on 1 September 2024. This date has been set in legislation and will not change. While this is the official implementation date, it falls on a Sunday, which means that retirement fund administrators will only implement the new system and run their processes from Monday, 2 September 2024. Only once the new system has been implemented can applications be processed. Different administrators may take some time to implement the new system and run their new processes.
Q Is it optional to join the two-pot system?
No – it’s mandatory. But it’s also automatic, so you won’t need to actually do anything – the admin will be taken care of on your behalf as long as you are a member of a retirement fund.
The only exception is provident fund members who were older than 55 on 1 March 2021. They will be given a choice to opt in.
Also remember that you don’t need to withdraw from the savings pot, leaving your benefits unaffected by the two-pot system.
Q Will I be able to access my savings pot as soon as the Two-Pot Retirement System is in place?
No. It is likely that it will take some time from the implementation date of 1 September 2024 before you can access your money. How long this will take will also depend on the retirement fund you are a member of, and the systems put into place by the fund administrators.
In addition, before you can be paid out, your fund will apply on your behalf for a tax directive from the South African Revenue Service (SARS). The tax directive issued by SARS will inform your fund how much tax must be deducted before payment is made to you.
Q Why is the system changing?
Currently, if you resign from your job, you can access your retirement savings. Many people do this with the sole purpose of accessing their money since their retirement savings are also their only savings. So, to ensure they will still have funds to retire with, the system is changing to allow limited withdrawals while preserving a portion of the retirement savings to provide a pension in retirement.
Q What is the Two-Pot Retirement System?
The Two-Pot Retirement System introduces new rules for accessing your retirement savings. From 1 September 2024, if you are a member of a retirement fund, you will be allowed to make partial withdrawals from your retirement fund before you retire. However, a portion of your retirement fund will be preserved – in other words, you will only be allowed to access it when you retire.
This does not apply to provident or provident preservation fund members who were 55 and older on 1 March 2021. These members may opt into the Two-Pot system (the cutoff date is likely 1 September 2025). Members of older “legacy” retirement annuity (RA) funds are currently also excluded from the two-pot system.
Q Which retirement funds will be included in the Two-Pot system?
The Two-Pot system applies to:
Q Which retirement funds will not be included in the Two-Pot System?
The funds that will be excluded from the Two-Pot System are:
Q Are there any people to whom the Two-Pot System doesn’t apply?
Yes – some members might be excluded from the Two-Pot System, including:
Q How will the two pots be split?
From 1 September 2024, new retirement fund contributions will be split into two “pots”. Your Savings Pot will contain one-third of your contributions, and you will be allowed to access those funds once per tax year. The other pot is called your Retirement Pot, and the funds in that pot will remain there until you retire and cannot be withdrawn unless you formally emigrate.
The new savings pot will be kickstarted by a once-off transfer of 10% from your existing “vested” savings as of 31 August 2024 up to a maximum of R30,000. You can access this seeding capital in your Savings Pot from 1 September 2024, as long as you have at least R2,000 in this pot. This seeding will happen only once and provides the starting balance in your savings pot in the fund.
Q What is seeding capital?
Seeding capital is the money that will automatically be transferred on 31 August 2024 from your current retired savings, into the savings pot. It will be 10% of what you have saved, up to a maximum of R30 000.
Q Is it compulsory for me to take the money in my Savings Pot on or from 1 September 2024? Will I lose it?
No. Your Savings Pot will simply sit there and grow, and you can withdraw it later if you need to. However, just because you can access it once every tax year doesn’t mean you should. Ideally, you should leave it to grow until retirement. You should only consider making a withdrawal if you have a real financial emergency that cannot be solved in any other way.
Q I have heard that I can only withdraw R30,000. Is this true?
No – it works like this. When the new Two-Pot Retirement System is introduced on 1 September 2024, 10% of your existing retirement savings as of 31 August 2024 (up to a maximum of R30,000) will be transferred into your savings pot. This is referred to as your Seeding Capital. In addition, one-third of all your contributions from 1 September 2024 will be added to the Savings Pot, meaning it will be topped up as you contribute. If you don’t withdraw that initial 10% (maximum R30,000), it will still be available for you to use. You can make a withdrawal from your Savings Pot once in a tax year (from 1 March to the end of February). A withdrawal cannot be less than R2,000.
Q Can I ask for the money to be moved from my Savings Pot to my Retirement Pot?
Yes, you may ask for all of the money or part of the money in your Savings Pot to be moved to the Retirement Pot. This would be a very wise decision, as you will one day retire with more money as you have not withdrawn some or all of your Savings Pot and you will retire in greater comfort as a result as you will receive a bigger monthly pension. Note that once it has moved to your Retirement Pot, you cannot move it back to the Savings Pot.
Q When the Two-Pot System launches on 1 September 2024 will my retirement fund put the money from my Savings Pot in my account?
No, it won’t – not everyone necessarily wants to withdraw the money from their savings pot, so you will have to apply to your retirement fund to withdraw those funds if you want to use them. You will only be allowed to make a withdrawal once every tax year. And it’s advised that you only access those funds in the case of an emergency.
Q How do I access the money in my Savings Pot?
It all depends on your retirement fund – each will have its own process. You will have to communicate with your retirement fund and read any information they send you to understand the process. For this reason, it’s important that you make sure your retirement fund has your most up-to-date contact details, so you don’t miss out on any important information.
Q When can I withdraw my money – will it be available on 1 September 2024?
It’s not likely – before you can access that money, the administrators of your fund will have to do the seeding calculation (10% of your current savings, capped at R30,000) and transfer it into your savings pot. The law says they can do this on or after 1 September 2024. Only once they have done this calculation, will you have a balance to withdraw from your Savings Pot.
If you decide to withdraw money from your Savings Pot, you will have to follow the application process as communicated by your retirement fund; the money won’t be automatically deposited in your account. Your fund will also have to apply on your behalf for a tax directive from the South African Revenue Service (SARS). The tax directive issued by SARS will inform your fund’s administrator how much tax must be deducted before payment is made to you.
Q: What do I need to prepare in the meantime, so I’m ready when I want to withdraw?
The fund will need to verify that you are the member, because you don’t want a situation where your hard-earned savings go to someone else! So, it’s important to ensure that your fund has your correct details – the right spelling of your name, the correct ID number and your up-to-date contact details.
Second, do you receive benefit statements for your retirement fund? Many people don’t look at them until they need to, but it’s important that you understand how much you have already saved towards your retirement. That will help you to understand how much – if anything – you are allowed to withdraw after 1 September 2024.
You will need to have R20,000 or more as a balance in your fund on 31 August 2024 in order for your Savings Pot to be seeded with the minimum withdrawal amount of R2,000. If you have at least R20,000 before the seeding calculation and therefore at least R2,000 in your Savings Pot after it is seeded, you will be able to withdraw from the pot soon after 1 September 2024 when your retirement fund confirms it is ready to allow withdrawals.
If you do not have the minimum withdrawal amount of R2,000, you will have to wait until you contribute more to your fund and the balance in your Savings Pot grows to at least R2,000.
Finally, make sure you have a tax number, and that your taxes are up to date. If your tax is not up to date, and you owe SARS money and/or penalties, those will be deducted from your withdrawal first.
Q What can I expect if I want to withdraw money from my Savings Pot after 1 September 2024?
You will have to submit an application to your fund saying how much you want to take, as long as you have at least R2,000 available to withdraw.
You will also need a tax directive, which the fund will apply for. This comes from SARS, and it tells the fund what percentage of tax must be paid on the withdrawal. It will also tell the fund if you owe SARS any tax! If you do, the money you owe will be deducted from your savings pot before the balance, if any, is paid. If SARS declines to issue your tax directive, then unfortunately you will not be able to access your savings pot benefit.
Finally, you will need to provide proof of your banking account, as your withdrawal can only be paid to you, as the retirement fund member: no one else.
Q Once I have applied to withdraw my money, how long before I get it?
The process can take several working days, provided there are no snags, such as unverified details or incomplete application forms. In addition, fund administrators are expecting large volumes of applications, which is likely to result in delays.
Fund administrators are requesting fund members to be patient, especially in the first couple of weeks following the implementation date of 1 September 2024.
Q What are the pros and cons of applying for a withdrawal from my Savings Pot?
The main pro is that you can access some funds in case of an emergency if you don’t have any other savings.
However, the cons are many. For starters, you will have to pay tax and probably an administration fee that comes out of the amount you withdraw. But by far the biggest disadvantage is that you will be decreasing the funds available to you when you retire. You also lose out on the potential investment growth of this money.
Q Is it possible that when I apply for a withdrawal, the application is denied?
Yes, it is. You could be denied a withdrawal if:
Q Does withdrawing from the Savings Pot affect my cash lump sum at retirement?
Yes, because the two-pot system gives you early access to the cash lump sum you can take at retirement.
Q Will the amounts in our Savings Pots differ even though we work for the same employer?
Yes, the amounts in each person’s Savings Pot differs depending on the total accumulated retirement savings and their years of service and the number of years they have been part of a retirement fund.
Q How much will I be taxed if I withdraw from my Savings Pot?
The tax rate will differ from one individual to another depending on your total income for the year and your tax bracket. Note that if you withdraw money from the Savings Pot, that income is added to your annual income. In some instances, it may push your annual income to a higher tax bracket. It is advised that you consult with a financial adviser and check your situation prior to making any withdrawals.
Q What about my existing retirement savings?
All the rights you had with respect to retirement savings made before 1 September 2024 will remain. Because your historic rights will be protected for these savings, they will be referred to as your Vested Retirement Savings (your Vested Pot). This means you can still withdraw your savings in cash if you resign, are retrenched, or are dismissed from an employer-sponsored retirement fund.
If your savings are in a retirement annuity (RA), the historic rules apply, and you will not be able to access this money until age 55, except under special circumstances like ill health or emigration.
Q How does the Two-Pot System differ from the current system?
In terms of the current system:
Under the Two-Pot System:
Q If I have more than one retirement fund, will the Savings Pot of each one be seeded?
Yes. If you are a member of an employer-sponsored pension or provident fund and you have a retirement annuity as well, each fund will be seeded with 10% (to a maximum of R30,000) of your savings in each of those funds when the Two-Pot System comes into effect.
If you have enough savings, it means you could potentially have R30,000 available in each fund on 1 September 2024.
Q Can I put the money back into my Savings Pot once I’m financially stable again?
Unfortunately, your retirement savings – and your Savings Pot specifically – doesn’t work like an ordinary savings account. So, you can’t put money back directly into your Savings Pot. You can increase your future contributions to the overall fund, and you can make a once-off voluntary contribution, but that won’t go directly into your Savings Pot. As with all your other contributions, one third will go into your Savings Pot, and two thirds will go into your Retirement Pot.
Q Can I only contribute to the savings component and not the retirement component?
No, you can’t allocate contributions directly into your Savings Pot – your contributions will automatically be split between the Savings and Retirement pots. You can increase your future contributions to the overall fund, and you can make a once-off voluntary contribution, but that wouldn’t go directly into your Savings Pot. As with all your other contributions, one third will go into your Savings Pot, and two thirds will go into your Retirement Pot.
Q What happens to my Pots if I leave my current employer and get a new job?
Your Pots will transfer with you to your new employer’s retirement fund and will be used in exactly the same way. The Vested Pot will also move. One third of your new employer’s contribution will go into your Savings Pot and two thirds of your new employer’s contribution will go into your Retirement Pot.
Q Will people who save with public or government retirement schemes such as Government Employees Pension Fund (GEPF) also be affected by these changes?
Yes, they will also be affected.
Q How will the Two-Pot system apply to defined benefit funds like the Government Employees Pension Fund (GEPF)?
The Two-Pot Retirement System will be applied to defined benefit funds using years of service to split your contributions between the Savings and Retirement pots. Although contributions will be allocated to each pot proportionately on a monthly basis, after each year of service you complete after 1 September 2024, four months’ worth of contribution will be allocated to the Savings Pot and eight months to the Retirement Pot.
Any savings that you, as a member, accumulate from the date you join a fund until 31 August 2024 will be allocated to the “Vested Pot”. These savings will be ringfenced or kept separate from savings made from 1 September 2024, and the existing fund rules will continue to apply.
The Savings Pot of defined benefit funds will be seeded in a similar way to other retirement funds: 10% of your existing retirement savings as of 31 August 2024, capped at R30,000, will be allocated to your savings pot. The calculation will reflect as the equivalent years (or portion of years) of service.
Q Will those saving via Retirement Annuities Funds be affected by these changes?
Yes, they will be, but members of older (legacy) Retirement Annuities (RAs) may be excluded from these reforms and may not be able to access the Savings Pot. Contact a financial adviser or the company you have invested your RA with to check your specific situation.
Q How will the Two-Pot System affect my preservation fund?
If you are a preservation fund member and have already taken out the once-off withdrawal that you are entitled to, the terms of the legislation provide you with another opportunity to access your funds.
Preservation funds are different from other retirement funds, because you set them up and then you don’t contribute to them again – they simply preserve the funds you had in a provident fund or a company pension fund when you leave that company.
All preservation fund members are allowed to make one withdrawal at any time before they retire. However, preservation funds will also have a Savings Pot, and it will receive the same initial capital of 10%, up to a maximum of R30,000, as other types of funds. So even if you have already made your once-off withdrawal, you will still be able to access this 10% (maximum R30,000), also known as seeding capital.
Q What happens if I resign after 1 September 2024? Will I be able to cash out all my funds accumulated before 31 August 2024?
Yes, you will be able to take all of your savings up until 31 August 2024 – the savings in what is known as your Vested Pot – as well as what is in your savings pot.
All the rights you had to your retirement savings made before 1 September 2024 stay in place. That’s why they are in the Vested Pot – so that those rights are protected. This means if you are a member of an employer-sponsored pension, provident or umbrella fund you can still withdraw your savings in this pot in cash if you resign, are retrenched, or are fired.
If your savings are in a retirement annuity (RA), however, the historic rules apply to the Vested Pot, which means you will not be able to access this money until age 55, except under special circumstances like ill health or emigration.
Q Where can I get more information?
You can talk to your HR department, HR Manager or the Retirement Fund Administrator (from the company that manages your retirement savings) or from a registered financial adviser.
For more information on the Two-Pot Retirement System please visit Smart About Money.
SmartAboutMoney is an ASISA initiative intended to empower consumers to make good money decisions. It is brand agnostic and intended for everyone. Subject matter experts have contributed to the content to ensure that it is current and relevant. All information is generic and there is no product or service push.
