How the Two-Pot System Will Impact Your Retirement Savings

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. 

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: 

1. The Retirement Pot: Most of your savings will go here, ensuring you have enough money for retirement. 
2. 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: 

1. 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. 
2. Savings Pot: This starts with 10% of your existing benefit, up to R30,000. Think of this as your "seed capital." 
3. 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: 

1. Vested Pot: Access this as per the current rules (i.e. before September 2024). 
2. Savings Pot: Take up to 100% in cash or buy a retirement product like a living annuity. 
3. 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. 

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!