The New Two-Pot Retirement System in South Africa
Exciting changes are coming to the way we save for retirement in South Africa starting September 1, 2024! The new Two-Pot Retirement System is designed to help you save more effectively for the future, while also giving you some flexibility to access a portion of your funds when you need them.
What’s in the Two-Pot System?
Here’s how it works:
- Savings Pot: When you contribute to your retirement savings, one-third of your contributions will go into this pot. You can access this pot during your working years for emergencies or other needs.
- Retirement Pot: The remaining two-thirds of your contributions will go into this pot, which is meant to be preserved for your retirement.
How It Affects Your Existing Savings
As of August 31, 2024, your current retirement savings will be moved into a “vested pot” under the old rules. Plus, you’ll have the option to make a one-time withdrawal of up to 10% of your balance as of that date, with a maximum limit of R30,000.
Making Withdrawals
Once the new system is in place, you can make one withdrawal per tax year from your savings pot, as long as it’s at least R2,000. Keep in mind that withdrawals from the savings pot will be taxed according to your personal tax rate, while the old tax rules will apply to withdrawals from the vested pot.
When You Retire
At retirement, you’ll need to use the full amount in your retirement pot to purchase an annuity. However, you can choose to withdraw the savings pot as a lump sum or use it to buy an annuity too.
Why This Is a Good Thing
The Two-Pot System is designed to help you keep most of your retirement savings intact while still giving you access to funds when you need them. It’s a great way to strike a balance between saving for the future and meeting your current needs. Just remember, making withdrawals can reduce the amount you have saved for retirement, so it’s a good idea to think carefully about how much you take out and try to preserve as much as possible for your future self.
This new approach aims to support both your immediate needs and long-term financial security.
