Big questions over the two-pot retirement system in South Africa
South Africa’s new two-pot system is live, but many retirement fund members still have questions.
The new system went live on 1 September 2024 and, as the name suggests, created two pots – “savings” and “retirement.”
The “savings” pot will hold one-third of all retirement savings from implementation and be accessible before retirement age.
A “retirement” pot will hold the remaining two-thirds of retirement savings and only be accessible upon retirement.
A third vested pot will hold all the savings until 31 August 2024, except for R30,000 used as seed funding for the two-pot system, and will be accessible upon retirement.
Billions have exited retirement funds since implementation, but many still have questions, such as how the system will affect one’s retirement as well as tax concerns.
“The Two-pot system is a game-changer, providing access to funds for urgent financial pressures,” said Lize De La Harpe, Senior Legal Advisor at Sanlam Corporate.
“But we also need to think beyond today. Are we solving today’s problems at the cost of tomorrow’s security? Understanding how this new system works is critical to making smart, informed decisions that protect both short-term needs and long-term financial well-being.”
Sanlam thus provided a list of common questions that South Africans are asking:
Are deferred retirees excluded from the Two-pot system?
This is not the case, as only those already drawing a pension are excluded.
Deferred retires – those who could have retired but kept their benefits in their fund – are currently included in the two-pot system.
Deferred pensioners who left their jobs but didn’t cash out are also included in the new system.
“Their fund credit will be split into two pots, giving them access to short-term savings while keeping their future in focus,” said De La Harpe.
I didn’t realise how much tax I would pay on my emergency savings pot withdrawal. Can I cancel my withdrawal request?
No.
Fund administrators must request a SARS tax directive when submitting a claim on an emergency savings pot.
This tax directive is “final” once
“A tax directive is “final” – once issued, the fund administrator must pay the member’s tax liability in terms of the SARS’s tax directive directly to SARS, failing which it would be liable to pay a penalty to SARS.”
“SARS will only allow the cancellation of tax directive applications where a bona fide mistake has been made.”
I have an overdraft on my bank account, so I know that once my savings pot withdrawal payout hits my account, the bank will deduct what I owe them. I desperately need this money.
Can I ask the fund to pay my savings pot withdrawal claim to my spouse’s bank account instead?
This is not the case, as the Pension Funds Act prohibits payments of pension fund monies to third-party bank accounts.
Can I cash out part of my vested component when I resign and leave the rest in the fund?
If one take’s out a portion of their vested component in cash, the rest of it, along with their savings and retirement components, must be transferred to a new fund.
That said, if one cashes out the entire vested component, they can preserve the other two components within the same fund.
What if I get retrenched? Can I access all of my money?
Retrenches workers can only accesses their vested and, in some cases, their savings pot (if they haven’t made any withdrawals that tax year or your emergency component or the balance is less than R2,000, you can dip into it for relief).
The retirement pot will remain locked up for the long haul, ensuring that funds are kept for retirement.
I’m over 55 and a provident fund member. Does the Two-pot system apply to me?
“If you were a member of a provident fund or provident preservation who was over 55 on T-day (1 March 2021) and remained a member of the same fund, you are automatically excluded from the Two-pot system – unless you opt-in within 12 months.”
“However, keep in mind that if you transfer to a new fund, you’ll automatically be included in the system going forward. So, it’s worth thinking carefully about your choices. There is flexibility, but ensure you understand the full picture before deciding.”
Read: Good news for interest rates in South Africa – what to expect