Two-pot retirement system: One year later
The two-pot legislation, introduced a year ago, was designed to give members more flexibility by allowing limited access to savings in emergencies while preserving long-term retirement funds.
After an initial rush of withdrawals, second withdrawals began in March 2025, showing that members are still adjusting to the framework. Since 1 September 2024, contributions have been split, with one-third allocated to a savings component that can be accessed before retirement, and two-thirds to a retirement component reserved for retirement only.
Savings Component
From 1 September 2024, the savings component will have an opening balance equal to 10% of the vested component or R30 000, whichever is lower, along with one-third of contributions made from that date. Before retirement, members may make one withdrawal per contract per tax year, with a minimum gross withdrawal amount of R2 000 (before fees and tax), taxed at their marginal tax rate. At retirement, the full savings component may be taken as a lump sum, which will be taxed according to the retirement lump sum tax table.
Retirement Component
From 1 September 2024, two-thirds of contributions will go to the retirement component. Before retirement, members may access this component only if they cease South African tax residency for three consecutive years or if their visa expires, with withdrawals taxed according to the lump sum withdrawal tax table. At retirement, the full retirement component must be used to purchase one or more annuities, provided each annuity has a starting value of at least R165 000.
Vested Component
The vested component refers to the fund's benefit as of 31 August 2024, and pre-1 September 2024 rules continue to apply. It consists of accumulated retirement savings as of that date and comprises T-day vested and non-vested benefits.
For provident fund members younger than 55 on 1 March 2021 (T-day), the T-day vested benefit includes all retirement savings accumulated up to 28 February 2021, while the T-day non-vested benefit includes savings accumulated from T-day onwards.
For provident fund members 55 or older on T-day and remaining in the provident fund, the T-day vested benefit includes all retirement savings up to 28 February 2021, plus any savings accumulated from T-day onwards. These members do not have a T-day non-vested benefit.
Provident fund members 55 or older on T-day who are transferred to a new fund after T-day have a T-day vested benefit equal to their retirement savings on the transfer date. At the same time, their T-day non-vested benefit comprises savings accumulated in the new fund from that point onwards.
Retail fund members generally have only a T-day non-vested benefit, unless they transferred from another fund with a T-day vested benefit, in which case they retain both T-day and non-vested benefits.
Resignation or retrenchment
You can take your full vested component, which will be taxed on the lump sum withdrawal tax table.
You can also take a savings withdrawal component, subject to the following:
- If you have not taken a savings withdrawal benefit in the tax year you resign, the value in the savings component must be R2 000 or more.
- If you have taken a savings withdrawal benefit in the tax year within which you resign, the value in the savings component must be less than R2 000.
The savings withdrawal benefit will be taxed at your marginal tax rate.
You are not entitled to take any part of your retirement component on resignation, and you can preserve it in the fund or transfer it to another fund for preservation until retirement.
National Treasury has indicated that it will consider access across all components of retrenchment as part of the next phase of the two-pot legislation. It is not clear when that will happen.
Retirement
Once members elect to take their retirement benefit, they will have the below options.
Savings component: At retirement, members can take the full or a portion of their remaining savings component as a cash lump sum, which will be taxed according to the retirement lump sum tax tables rather than their marginal tax rate. Any remaining balance in the savings component must then be used to purchase a pension.
Retirement component: A member must use the full value of their retirement component to buy a pension, except if the de minimis rule applies. In that case, they can take the amount in their retirement component as a cash lump sum and do not have to buy a pension with it. The lump sum cash amount will be taxed according to the retirement lump sum tax table.
Vested component: Members can take their total T-day vested benefit and one-third of their T-day non-vested benefit as a cash lump sum, which is taxed as a retirement lump sum. They will have to use the remaining balance in their vested component (i.e. two-thirds of their T-day non-vested benefit) to buy a pension, except if the de minimis rule is applicable.
A member’s pension income is taxed at their marginal tax rate per the tax directive SARS sends to the insurer.
De minimis rule
The de minimis rule allows members whose total retirement savings in the retirement component, plus two-thirds of their T-day non-vested benefit in the vested component, equal R165 000 or less to take the full amount as a cash lump sum at retirement. In this case, they are not required to use any portion to purchase a pension.
Focus on the long-term and get financial advice
Remember, even though you can withdraw money from your savings component, you don’t have to. We recommend that you contact your financial adviser before making any decisions regarding your retirement. South African retirement funds must also give their members access to retirement benefit counselling when they are close to retirement and at retirement.
In case you missed it
Find all our previous newsletters under one, easy-to-find space, for your convenience.
