How the Two-Pot System Will Impact Your Retirement Savings

The retirement savings landscape in South Africa changed significantly on September 1, 2024, with the introduction of the Two-Pot Retirement System. This new approach fundamentally changes how we save for retirement and access our funds. Whether you're just starting your retirement journey or already have substantial savings, these changes affect you.

Understanding Your New Retirement Structure

The government introduced this system to tackle a stark reality: only 6% of South Africans can retire comfortably. The new structure aims to balance long-term saving with the need for emergency access to funds.

Your retirement savings are now divided into distinct pots. The retirement pot, which holds the majority of your savings, is strictly for your retirement years. The savings pot, while smaller, provides a safety net for financial emergencies before retirement. Your pre-September 2024 savings now sit in what's called the vested pot, maintaining their original rules.

Want to see exactly how these changes affect your savings? Our Two-Pot Calculator can give you a personalised breakdown.

How Your Money is Split

The transition wasn't just about future contributions. Your existing retirement savings went through a restructuring process. A portion of your pre-September savings (10%, capped at R30,000) moved to your savings pot as seed capital. The rest stayed in your vested pot, following the rules you're familiar with.

For all new contributions, the split is straightforward: two-thirds goes to your retirement pot, ensuring your long-term security, while one-third flows into your savings pot for potential emergency access.

Accessing Your Savings

The savings pot introduces new flexibility to retirement funds, but with clear boundaries. You can make one withdrawal per tax year, provided you take out at least R2,000. Remember though - these withdrawals are taxed at your marginal rate, just like your salary.

This access to funds means you're less likely to need to resign just to tap into your retirement savings - a practice that has historically derailed many retirement plans. However, the flexibility comes with responsibility. Every withdrawal from your savings pot means less money growing for your future.

Looking Toward Retirement

When retirement arrives, each pot follows its own rules. Your retirement pot must be used to secure a regular income, typically through a product like a living annuity. The savings pot offers more choices - you can take it as cash or use it to boost your retirement income. Your vested pot maintains its pre-September 2024 withdrawal rules.

Making Smart Choices

The new system brings both opportunities and challenges. While emergency access to funds provides peace of mind, it's crucial to resist the temptation to treat your savings pot like an ATM. Each withdrawal affects your compound growth potential, which could significantly impact your retirement lifestyle.

Tax implications also deserve careful consideration. Withdrawals from your savings pot could push you into a higher tax bracket for that year. Sometimes, waiting until the next tax year for a withdrawal might make more financial sense.

Planning Your Path Forward

Understanding how the two-pot system affects your specific situation is crucial for making informed decisions. Our Two-Pot Calculator can help you explore different scenarios and understand the long-term impact of your choices.

The two-pot system marks a significant evolution in South African retirement planning. It offers more flexibility while maintaining strong protections for your retirement security. The key is finding the right balance between current needs and future security. After all, the choices you make today will shape your financial future.