The two-pot system in a nutshell – what do you need to know?

Feel free to reach out to PSG Wealth Manager Mareli Binedell directly.

National Treasury’s intention with the proposed two-pot system is to address the following concerns:

1. Currently, individuals can access their pension funds and provident funds in full when resigning from employment. This might be an incentive to leave employment in order to gain access to those funds, thereby putting long-term retirement savings at risk and not necessarily being able to find new employment.
2. Retirement fund members currently have no access to a part of their retirement fund benefits in case of emergencies or financial hardship prior to retirement.

With effect from 1 September 2024, members’ contributions to retirement funds will be split into two pots (components):

• One-third of contributions will be allocated to the ‘savings component’.
• A withdrawal option (minimum of R2 000) is available once a year and will be taxed according to the member’s marginal tax rate.
• Thus the savings pot can be accessed without changing employment status.
• The lump sum taken at retirement will be taxed according to the retirement lump sum tax table.
• Funds can also be transferred tax free to the retirement pot.

• Two-thirds of contributions will flow to the ‘retirement component’.
• A member will have no access to this component before retirement.
• At retirement these funds will be used to purchase an annuity.

Essentially, there will also be a third pot or so-called ‘vested component’ for all accumulated retirement funds up to 31 August 2024. These funds will be subject to the old rules with regard to accessibility (including 1 March 2021 changes) and no further contributions will be allowed into this pot. On 1 September 2024, a one-off compulsory transfer will be made from the vested component into the savings component as ‘seed capital’ to address the need for immediate access to funds. Seeding capital will be set at 10% of your retirement savings – up to a maximum limit of R30 000.

Provident fund members who were aged 55 or older on 1 March 2021, and who have vested rights related to their ongoing contributions to that provident fund, may choose whether or not they want to participate in the two-pot system. This will be a one-off option that will be irreversible, making it a complex decision for members to make.

Although the idea is to allow members access to their savings pot in times of financial distress before retirement, one should think carefully before exercising this option. According to National Treasury, only about 6% of South Africans can retire comfortably. This means, as things stand, most people have already not made sufficient provision for their retirement.

Please speak to your financial adviser if you have any questions on how this will impact you, and to ensure that your retirement planning is in place.