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The Two-Pot Retirement System Explained

Draft legislation, published in June of this year for public comment, outlines the National Treasury’s plans to implement the proposed “two-pot” retirement savings system for retirement fund members in South Africa.

The new legislation will apply to all members of:

  • Occupational retirement funds (pension or provident funds, in both stand-alone and umbrella funds);
  • Preservation funds; and
  • Retirement annuities.


Legacy retirement annuities sold by life insurance companies with risk benefits have the option of applying for an exemption from the proposed “two-pot” system.

The proposed changes in the 2023 Draft Revenue Laws Amendment Bill aim to address two main concerns that the National Treasury has:

  • Inability to access funds during a time of emergency – recently highlighted during the Covid-19 pandemic when many households were in financial distress, with their only assets being tied up in retirement benefits. These are typically members who are in dire financial circumstances and their short-term requirements take precedence over their long-term retirement goals.
  • Lack of preservation and retirement considerations – to avoid the scenario of members resigning from their jobs to access their retirement benefits in cash, resulting in a shortfall at retirement.


Although the new legislation refers to a “two-pot” system, it will not be applied retrospectively. Therefore, all contributions up until 29 February 2024, along with future growth, will not be subject to the new rules. It will be helpful to consider your retirement benefits in three separate pots.

  1. Vested Pot – this includes all contributions up until 29 February 2024, plus future growth. These benefits are taxed according to the existing tax provisions and rules (i.e., only accessible on retirement at 55 or resignation. No compulsory preservation on resignation, full withdrawal allowed subject to the retirement fund lump sum withdrawal benefits tax tables).
  2. Savings Pot – one third of all retirement fund contributions from 01 March 2024 will be allocated to your savings pot. The savings pot is the accessible portion of your retirement savings. Withdrawals can be made once a year, with a minimum withdrawal being R2,000. The draft legislation suggests that, to kickstart your savings pot, “seed capital” of 10% of your vested pot as of 29 February 2024 may be transferred to it, capped at R25,000. It is essential to note that any pre-retirement withdrawals from your savings pot will be included in the member’s taxable income for that year and taxed at the member’s marginal income tax rate (between 18% – 45%). There is a clear tax incentive to wait until retirement to access your retirement savings, as taking any lump sums at retirement from your savings pot will be subject to the retirement fund lump sum benefits tax table (between 0% – 36%), with the first R550,000 being tax-free. The idea here is to deter members from accessing their savings pot for mere accessibility and reserve it for emergencies. At retirement, any remaining amount in your savings pot may be taken as a cash lump sum (subject to tax tables) or transferred to your retirement pot to purchase a pension annuity.
  3. Retirement Pot – two-thirds of all retirement fund contributions from 01 March 2024 will be allocated to your retirement pot. This amount cannot be accessed until the retirement age of 55, and 100% of this pot must be used at retirement to purchase a compulsory pension annuity, providing an income during retirement. A full cash withdrawal is allowed if the balance in this pot is R165,000 or less, or if the member ceases to be a tax resident upon emigration for a minimum period of 3 years, subject to the retirement fund lump sum withdrawal benefits tax tables.
Members who turned 55 and were part of provident fund on 01 March 2021 have the option of sticking with the current retirement fund system or adopting the new proposed “two-pot” retirement reforms. Administrators now face a race against time to get their systems ready by 01 March 2024 to efficiently process contributions and claims from eligible portions within your retirement fund.


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