How the Two-Pot System Will Impact Your Retirement Savings
5 August 2024
On 1 September 2024, your retirement savings are in for a big change. The new Two-Pot Retirement System will shake up how you save, access, and plan for your retirement.
What does this mean for your hard-earned money? Will you have more flexibility? Are there new rules to follow?
And, most importantly, how will it affect your long-term financial security?
Let's start by getting a clear picture of your situation.
Our Two-Pot Calculator shows how these changes will affect your retirement savings. Fill in a few details about your current savings and future contributions, and you'll see a personalised breakdown of what to expect.
![Savings for Retirement, Income in retirement, Retirement Annuity, Investment, Preservation Fund, Retirement Planning, Savings for Retirement, Living Annuity, Performance Two pot calculator](/_next/image?url=https%3A%2F%2Fimages.ctfassets.net%2Fyqvz0zwovkbq%2FVXr66OmXVPeLkFQqt72S7%2F5a1ca289f2d9c31135fdc0fbd3420311%2F2-pot_1400_CTA.webp&w=2048&q=75)
Now that you have a snapshot of your two-pot future, let's explore how this new system will reshape your retirement landscape.
What is the Two-Pot Retirement System?
The Two-Pot retirement system is part of the government's plan to improve retirement outcomes for all South Africans. It tries to balance two crucial needs: long-term saving and access to funds during financial emergencies.
Under this new system, your retirement savings will be split into two main pots:
- The Retirement Pot: Most of your savings will go here, ensuring you have enough money for retirement.
- The Savings Pot: This smaller portion allows limited access before retirement for unexpected expenses.
Why the change?
Only 6% of South Africans can retire comfortably. The Two-Pot system aims to fix this by encouraging long-term saving while providing a safety net for financial emergencies.
How Will This Affect Your Current Retirement Savings?
From 1 September 2024, your existing retirement savings will be restructured into three parts:
- Vested Pot: This includes your savings up to 31 August 2024, minus the seed capital for your new Savings Pot (see below). The rules for this pot stay the same.
- Savings Pot: This starts with 10% of your existing benefit, up to R30,000. Think of this as your "seed capital."
- Retirement Pot: The rest of your savings go here.
What About Your Future Contributions?
From 1 September 2024:
- One-third goes to your Savings Pot
- Two-thirds go to your Retirement Pot
This split ensures you're building up accessible savings while still focusing on your long-term retirement goals.
When Can You Dip Into Your Savings Pot?
The Savings Pot is there for financial emergencies, but there are rules:
- You can only make one withdrawal per tax year (1 March to 28/29 February).
- The minimum withdrawal is R2,000.
- Withdrawals are taxed as part of your income for that year.
Remember, frequent or large withdrawals can put a dent in your long-term savings.
Use our calculator to see how different scenarios might affect your retirement outlook.
What Happens When You Retire?
At retirement, you'll have different options for each pot:
- Vested Pot: Access this as per the current rules (i.e. before September 2024).
- Savings Pot: Take up to 100% in cash or buy a retirement product like a living annuity.
- Retirement Pot: Use 100% to buy a retirement product like a living annuity.
This structure gives you both flexibility and long-term security.
The Pros and Cons of the Two-Pot System
Pros:
- You have access to some savings for real emergencies
- There’s less temptation to resign just to access retirement funds
- Most of your retirement savings stay protected
Cons:
- Excessively using up your Savings Pot could meaningfully impact your long-term savings
- Tax implications when withdrawing from the Savings Pot
- Managing multiple pots might seem tricky
The key to making the most of this new system is understanding how it applies to you. That's where our Two-Pot Calculator comes in handy. It helps you visualise different scenarios and make smart decisions about your contributions and potential withdrawals.
![Savings for Retirement, Income in retirement, Retirement Annuity, Investment, Preservation Fund, Retirement Planning, Savings for Retirement, Living Annuity, Performance Two pot calculator](/_next/image?url=https%3A%2F%2Fimages.ctfassets.net%2Fyqvz0zwovkbq%2FVXr66OmXVPeLkFQqt72S7%2F5a1ca289f2d9c31135fdc0fbd3420311%2F2-pot_1400_CTA.webp&w=2048&q=75)
Wrapping Up
The Two-Pot Retirement System is a big shift in how we approach retirement savings in South Africa. It offers more flexibility but also means you must carefully plan to ensure you're not short-changing your future self.
By understanding how this system works and using tools like our Two-Pot Calculator, you can make informed decisions that balance your current needs with your retirement goals. Remember, your choices today will shape your financial future – make them count!
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