Whether your retirement savings are held in an employer fund or invested in a retirement annuity, you’ve likely heard about the Two Pot system and may be wondering how it applies to you. We’re here to help you understand this new system and its impact on your future.
What is the Two Pot System?
The Two Pot system is a new government initiative, effective from 1 September 2024, designed to change how individuals access their retirement savings.
It aims to:
- Provide limited access to retirement savings for non-retired members in times of need.
- Improve the long-term preservation of members’ retirement savings.
What Changes on 1 September 2024?
From this date, all new contributions to your retirement savings will be divided into two pots:
Savings Pot: One-third of your contribution will go into this pot, which can be accessed once per year (subject to certain minimums). The savings pot is intended for emergency use and should not be treated as a regular savings account. Please note that withdrawals from this pot will be taxed at your marginal tax rate
Retirement Pot: The remaining two-thirds will go into this pot, which will remain inaccessible until retirement (except in cases of immigration, disability, or death). At retirement, 100% of this pot must be used to provide your retirement income.
How Are Your Existing Retirement Savings Affected?
All retirement savings accumulated up to 31 August 2024 will be ring-fenced under the current rules. The Two Pot system will apply only to contributions made from 1 September 2024 onward. Additionally, a once-off transfer of 10% (up to a maximum of R30,000) from your ring-fenced retirement fund to your savings pot will be made, ensuring you have some funds available in your savings pot.
Currently, pension funds, provident funds, and retirement funds have different rules for accessing savings. The proposed changes will create consistency across all types of retirement funds, regardless of whether you’re contributing to a pension fund, provident fund, or retirement annuity.
Who is Exempt from the Two Pot System?
The Two Pot system applies to everyone, but if you were 55 or older on 1 March 2021 and were contributing to a provident fund at that time, the Two Pot system will not automatically apply to your provident fund, though it will apply to any retirement annuities and pension funds. If you fall into this category, we recommend discussing your specific options with us going forward.
There is no need to worry about the upcoming changes or rush to access your retirement savings before 1 September. The new rules will not affect your existing retirement savings accumulated before this date.
If you have any questions or need further clarification, please don’t hesitate to reach out. We’re here to help you navigate these changes and ensure your retirement planning remains on track.