It’s finally happening: The Pension Funds Amendment Bill has been signed into law. This means that from 1 September members of South African retirement funds now belong to a two-pot retirement system.

We’ve compiled this detailed breakdown to share important need-to-knows to navigate this new era with know-how.

The two-pot retirement system changes how South Africans save for retirement. The goal is to provide a balance between allowing access to funds for emergencies and preserving the bulk of savings for retirement.

Implications for current retirees

• Retirement fund members who were 55 years old when the new system was announced on 1 March 2021 aren’t automatically included in the new system.
• Provident fund members who were 55 years old when the new system was announced on 1 March 2021 can opt-in to the two-pot system if their fund today is the same fund they belong to on 1 March 2021. They retain their provident fund rights until they retire from the fund.

The two-pot system does not apply to the following products: Beneficiary funds, unclaimed benefit funds, dormant/closed funds, and legacy retirement annuity funds.

Two-pot system breakdown

The Access pot (the first pot, also known as the ⅓ savings pot)

From 1 September 2024, one-third of all contributions to your retirement fund will be added to the savings pot. You are allowed to withdraw once a year (tax year) from this pot. 

The Preservation pot (the second pot, also known as the ⅔ savings pot)

This is the compulsory preservation pot. Two-thirds of all your retirement fund contributions will be allocated to the preservation pot. 

The Vested pot (the lesser-known ‘third’ pot)

If you’re an active contributor to a retirement fund today, there will be three pots you need to be aware of. The third pot is the vested component pot. This means that all the retirement savings you’ve built up from the day you started to invest in a retirement fund up until 1 September 2024, will be allocated to the vested pot. There will be no future contributions to the vested pot – from 1 September 2024 contributions will be split between the Access pot (1/3) and the Preservation pot (2/3).

Two-pot system rules

Access pot rules (⅓ pot)

• If you belong to more than one Regulation 28 product (i.e. a retirement fund product), the rules apply to each fund. So, if you are a member of three funds, you can withdraw all the access pot contributions across all three funds.
• You need a minimum of R2,000 in your access pot to make a withdrawal.

Year 1 of the two-pot system

• As there won’t be any money in the access pot once the system kicks into gear in  September, a seeding amount will be made available to cater to individuals who require immediate access to cash. This seeding amount will come from the vested pot.
• 10% of the amount in your vested pot (to a maximum of R30,000), will be transferred to your access pot. So for example, if you already have R250,000 saved up in your retirement annuity, R25,000 will be transferred to your access pot.
• If you don’t withdraw this seeding amount from your access pot, it will just roll over into the next year.
• All withdrawals are subject to marginal tax rates and administration costs from the fund administrator. These costs may be quite high.

Year 2 and on-wards of the two-pot system

• The maximum withdrawal limit of R30,000 only applies to the first year. From year 2 on-wards, 100% of the contributions to the access pot can be accessed.
• All withdrawals are subject to marginal tax rates and administration costs from the fund administrator.

Preservation pot rules (⅔ pot)

You can only access the funds from the preservation pot when you retire, pass away or emigrate.

Vested pot rules (existing retirement savings pot)

When you resign or are retrenched, you can still access the full amount from the vested pot. That’s a vested right for individuals. E.g. If you resign or get retrenched in two years, you can still access all the contributions in your access pot as well as your vested pot (i.e. your ‘third’ pot.)

First withdrawal need-to-knows

• If you are desperate to withdraw the seeding amount from your access pot in September, double-check whether your fund administrator is ready before embarking on the application process.
• Check administrators’ costs before submitting your withdrawal application. These costs are expected to be quite high.
• Ensure your tax is in order. If you owe SARS money, they will also deduct any outstanding taxes in addition to the tax you will pay on the withdrawal.
• Remember: Retirement savings is a long-term investment and should be treated as such. Withdrawal will negatively impact your income replacement ratio.

Why you need to get involved

• Become an active participant in your retirement savings and check how your fund is planning to allocate the access pot funds. As one-third of your retirement savings can now be accessed yearly, that investment is effectively more short-term. This calls for greater liquidity. How the investment strategy for the access pot will be affected, depends on the fund’s investment manager (it might not be altered at all – it’s still early days).
• That said, it’s important to remember that liquidity can still be achieved with equities (so make sure your administrator doesn’t just keep ⅓ of your retirement contributions in a savings account).
• All retirement funds are by law required to have a retirement benefits counselor. Consult them if you’re uncertain at any point.

Reaching retirement age under the two-pot system

When you reach retirement age, the same rules apply. You can still access a third of your savings in cash (the first R550,000 exempted from tax), and you will still be required to purchase an annuity with the remainder of your savings.

Divorcing under the two-pot system

The spouse is entitled to funds across all the pots proportionally.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.