The 2-pot retirement system has been a hot topic since its introduction on 1 September 2024. Here’s a handy guide to the big questions.

1. What is the 2-pot retirement system?

The system divides your retirement contributions into a savings component and a retirement component, referred to as ‘pots’. The savings component is there for you to draw on for unexpected emergencies like medical or legal expenses. The retirement component is specifically created for preservation until retirement, so you can’t withdraw from it before then.

2. Which retirement funds must adopt the 2-pot system?

The new system will apply to all retirement funds in both the private and public sector, except for legacy retirement annuity policies or funds with no active participating members. Pension and provident fund members who were 55 or older on 1 March 2021 were excluded from the 2-pot system, although they can opt in if they wish to.

3. How does it work?

On 1 September 2024, your retirement investments were split into 2 pots – a savings component and a vested retirement component. Most of your existing retirement savings went into the vested component to remain invested for continued growth, while 10% of your accumulated investment was transferred to your savings component as seed capital, up to a maximum of R30,000. 

Every retirement contribution you make from now on will be split into 2 portions: one-third into a savings pot and two-thirds into a retirement pot.

Savings pot

You can make withdrawals from the savings pot of your retirement fund under the following conditions:

• You need a balance of at least R2,000 in your savings component to make a withdrawal.
• You can withdraw from your savings component once per tax year. Withdrawals are added to your taxable income, to be taxed at your marginal tax rate at the time of withdrawal. The tax liability is there to encourage you not to withdraw from your savings pot unless it’s an emergency.
• If you choose not to withdraw from your savings pot, the remaining funds will be taxed as a lump sum benefit upon retirement, according to the retirement lump sum tax table. These rates are generally lower than the marginal tax rates you will pay on withdrawals before retirement.

Retirement pot

This pot must be used to buy an income-producing annuity when you retire.

4. What are the rules for withdrawing from my savings pot?

Remember that you can make only 1 withdrawal per tax year. The minimum withdrawal amount is R2,000, so you need a savings pot balance of at least R2,000. The savings withdrawal is subject to marginal income tax and an administration fee.

5. What happens to my funds when I die?

Your beneficiaries will be able to access the money in all 3 components as a cash lump sum retirement benefit or a compulsory annuity, or a combination of both. 

6. What happens to money saved in my retirement fund before 1 September 2024?

Your vested pot holds all retirement savings accumulated by the end of 31 August 2024. It was reduced by a once-off seeding of 10% of its value (up to R30,000), which was put into the savings component on 1 September 2024.  

If these accumulated savings are invested in a pension or preservation pension fund:

• at retirement you are allowed to withdraw whatever is left in your savings pot and up to one-third of your vested pot as a lump sum, and
• you must use what remains in your vested pot to buy an income-producing annuity.

In the case of a provident fund:

• you can withdraw any money left in your savings pot, and take your full vested benefit from contributions made before 1 March 2021 as a lump sum, plus one-third of the non-vested benefits in your retirement pot, and
• you must use the remaining two-thirds of the non-vested benefit to buy an annuity.

7. What happens if I have no money left in my savings pot at retirement?

You will still have your vested retirement pot, plus two-thirds of your contributions since 1 September 2024, plus the interest you have earned. You’ll be allowed to withdraw up to a third to give you immediate cash liquidity, but the remainder must go into an income-producing annuity.

8. What will my retirement fund options be if I resign?

In the past, you could withdraw your entire pension fund in cash when you resigned – and that rule will still apply to any retirement savings accumulated before 1 September 2024. However, you will be able to withdraw only from the savings pot of any retirement savings accumulated after that date. When you resign, you must now transfer your retirement component to a preservation fund, preserve it with your previous employer, or transfer it to the retirement fund offered by your new employer. You will only have access to this component at retirement.

9. I am already 55 years old. Do these new rules apply to me?

The 2-pot retirement system applies to all retirement funds, except legacy annuity policies or inactive funds. Pension and provident fund members who were 55 or older on 1 March 2021 will not be included in the 2-pot system automatically, but you can choose to participate if you wish to.

Nedbank can help you work out how much you need to save at your various life stages for a comfortable retirement. Browse our savings and investment offerings to find those that are right for you or speak to a financial adviser to find out more about the 2-pot system and the best plan for your retirement savings and investments. You can use a tax calculator to work out your tax liability.