Two-pot retirement system
The two-pot retirement system became effective on 1 September 2024. This page summarises the changes and explains their impact.
How does it work?
All contributions made to retirement funds from 1 September 2024 are split as follows: One-third is allocated to a savings component and two-thirds to a retirement component. These components form part of one retirement account.
The savings component allows for one withdrawal of at least R2 000 per tax year (1 March to end-February) before retirement. At retirement, any remaining balance can be taken as cash or used to purchase a retirement income product, such as a living annuity or a guaranteed life annuity.
The retirement component must be preserved until retirement. At that point, it must be used to purchase a retirement income product, such as a living annuity or a guaranteed life annuity.
While contributions are allocated to different components, the components still form one retirement account that should be viewed holistically.
How does the new system apply to you?
Not all retirement fund members have been impacted in the same way. Click on the relevant block below to learn more.
Your retirement account has up to three main components, as shown below:
The vested component of your account consists of your accumulated investments up until 31 August 2024 – being your two-pot vested benefit and your harmonisation vested benefit (if applicable) – plus growth. You cannot make additional contributions to your vested component. However, your previous rights continue to apply to your vested component, i.e. your vested component is not impacted by two-pot.
Two-thirds of contributions made from 1 September 2024 are allocated to the retirement component. For example, if you contribute R3 000 per month to your Allan Gray retirement investment, R2 000 is allocated to your retirement component.
The full amount in your retirement component must be preserved until retirement. At retirement, you must use the full amount in this component to purchase a retirement income product, such as a living annuity or a guaranteed life annuity. This means you cannot withdraw a cash lump sum from your retirement component, either before or at retirement, unless the de minimis rule applies.
The savings component was seeded with an initial amount transferred from the vested component of your account on 1 September 2024. One-third of contributions since then are allocated to the savings component.
Prior to retirement, you can make one withdrawal of at least R2 000 per tax year from your savings component. It is important to understand the long-term implications of accessing your retirement investment early.
At retirement, you can take any remaining balance in this component as cash or use it to purchase a retirement income product, such as a living annuity or a guaranteed life annuity.
Seeding refers to the initial, once-off funding of your savings component from your vested component, which took place on the implementation date. You are not required to withdraw the amount that has been seeded. Seeding has no immediate financial consequences, but there are consequences for withdrawing from your retirement investment.
The amount seeded equalled 10% of the market value of your account on 31 August 2024, subject to a maximum of R30 000. For example, if you had R100 000 in your Allan Gray retirement account on 31 August 2024, R10 000 would have been transferred from your vested component to your savings component.
While the two-pot system allows you to access a portion of your retirement investment, it is important to preserve as much of your investment as possible until retirement so that you can maximise the benefits of compounding and retire comfortably. You should therefore not view your savings component as a short-term savings vehicle – it is still part of your retirement account, i.e. a long-term investment intended to provide for your retirement.
You can make one withdrawal of at least R2 000 per tax year from the amount in your savings component.
Withdrawals from your savings component before retirement are taxed according to your marginal tax rate. It is important to remember that accessing your savings component before retirement reduces the amount you will have available to withdraw as a cash lump sum or purchase an annuity at retirement. You should therefore avoid withdrawing before retirement to maximise your options at retirement.
Choosing not to withdraw from the savings component of your retirement account within any specific period before retirement has no negative implications, as you do not lose your right to withdraw from this component.
You cannot withdraw from your retirement component under any circumstances, including if you resign from employment or if you encounter financial difficulty, unless you cease to be a South African tax resident.
Pre-retirement withdrawals from your vested component are governed by the previous fund rules. For example, if you are invested in a retirement annuity fund, you will not have access to the vested component of your investment until you reach the stipulated retirement age, even if you choose to resign.
It is important to view your retirement account holistically when making decisions, even though there may be different rules attached to the different components making up your account.
At retirement, you will have the option to access the remaining balance of your savings component (or a portion of it) in cash, even if you have already taken a withdrawal during the same tax year. Cash withdrawals at retirement will be taxed according to the retirement fund lump sum tax table. You can also choose to use some or all of the funds to purchase a living annuity or a guaranteed life annuity.
The full value of your retirement component must be used to purchase an annuity, unless the de minimis rule applies.
If you have a two-pot vested benefit, you will only be able to take one-third of this benefit in cash, and the remaining two-thirds must be used to purchase a retirement income product, such as a living annuity or a guaranteed life annuity. If you also have a harmonisation vested benefit, you will have the option to withdraw 100% of this benefit in cash. These withdrawals are taxed.
Dipping into your retirement investment robs you of the full benefit of compounding. Accessing any part of your savings component before retirement will reduce the amount you will have available at retirement to purchase a retirement income product or to take as a cash lump sum. You will also lose out on the favourable tax treatment of taking a cash lump sum at retirement compared to making withdrawals before retirement.
For example, withdrawing R30 000 from your savings component before retirement could reduce the value of your investment at retirement by R130 000 in today’s money terms. Therefore, you should only consider withdrawing from your savings component under exceptional circumstances and as a last resort.
Visit our interactive two-pot savings tool to understand the impact of withdrawing from your savings component. The tool has been designed to show you the potential long-term growth in your investment if you choose to remain invested, as well as the tax you may have to pay if you choose to withdraw.
The tax treatment of contributions to retirement funds has not changed. Contributions to a retirement fund are tax-deductible up to 27.5% of the greater of taxable income or remuneration (excluding any retirement fund lump sum, withdrawal and/or severance benefits) per tax year, subject to a maximum of R350 000 per tax year. Any contributions above the maximum amount will be carried forward to the next tax year.
If you decide to withdraw from your savings component before you retire, the withdrawal will be taxed at your marginal tax rate.
When we receive your withdrawal instruction, we will apply for a tax directive from the South African Revenue Service (SARS). The tax directive will indicate the amount of tax that must be withheld from the withdrawal and paid to SARS. SARS may also include a deduction order (IT88) if you have any outstanding taxes, which we will need to apply to your withdrawal. We will then pay the after-tax amount to you.
These withdrawals will not reduce the tax-free withdrawal allowance available to you at retirement.
Any allowable pre-retirement withdrawals from your vested component will be taxed according to the retirement fund withdrawal tax table.
At retirement, you will have different options for the different components of your retirement account.
You will be able to withdraw the full amount available in your savings component. This withdrawal will be taxed according to the retirement fund lump sum tax table. Alternatively, you can transfer a portion or the entire amount to an annuity.
You must use the full value of your retirement component to purchase an annuity at retirement, unless the de minimis rule applies.
Any allowable withdrawals at retirement from your vested component will be taxed according to the retirement fund lump sum tax table.
You will be able to withdraw from your savings component, provided you have not already taken your one withdrawal permitted in a given tax year.
You will not be able to withdraw from your retirement component.
The rules that applied on resignation before the two-pot system was implemented will continue to apply to your vested component. For example, if you are a member of a pension or provident fund, you can still access 100% of the vested component of your investment when you resign, subject to specific fund rules. These withdrawals are taxed according to the retirement fund withdrawal tax table.
If you transfer your investment to another retirement fund provider, all existing components in your investment (and their rights) will be retained upon transfer.
You are also allowed to transfer between components within the same investment as follows:
- Transfer from your vested component to your retirement component
- Transfer from your savings component to your retirement component
These are one-way transfers, and you will not be able to undo the transfer if you require access to your retirement investment.
While the two-pot system provides you with access to a portion of your retirement investment in case of severe financial stress, it does not change how you should invest for your retirement. You should view the components in your retirement account holistically and remain invested in funds that will offer you the best chance of having a sufficient accumulated investment at retirement to provide an adequate post-retirement income.
Click here for additional insights on the changes to the retirement system.
Your retirement account has two components, as shown below:
Two-thirds of contributions are allocated to the retirement component. For example, if you contribute R3 000 per month to your Allan Gray retirement investment, R2 000 is allocated to your retirement component.
The full amount in your retirement component must be preserved until retirement. At retirement, you must use the full amount in this component to purchase a retirement income product, such as a living annuity or a guaranteed life annuity. This means you cannot withdraw a cash lump sum from your retirement component, either before or at retirement, unless the de minimis rule applies.
One-third of contributions are allocated to the savings component. Prior to retirement, you can make one withdrawal of at least R2 000 per tax year from this component. At retirement, you can take any remaining balance in this component as cash or use it to purchase a retirement income product, such as a living annuity or a guaranteed life annuity.
While the two-pot system allows you to access a portion of your retirement investment, it is important to preserve as much of your investment as possible until retirement so that you can maximise the benefits of compounding and retire comfortably. You should therefore not view your savings component as a short-term savings vehicle – it is still part of your retirement account, i.e. a long-term investment intended to provide for your retirement.
Before retirement
You can make one withdrawal of at least R2 000 per tax year from the amount in your savings component. Withdrawals from your savings component before retirement are taxed according to your marginal tax rate. It is important to remember that accessing your savings component before retirement reduces the amount you will have available to withdraw as a cash lump sum or purchase an annuity at retirement. You should therefore avoid withdrawing before retirement to maximise your options at retirement.
Choosing not to withdraw from the savings component of your retirement account within any specific period before retirement has no negative implications, as you do not lose your right to withdraw from this component.
You cannot withdraw from your retirement component under any circumstances, including if you resign from employment or if you encounter financial difficulty, unless you cease to be a South African tax resident.
At retirement
It is important to view your retirement account holistically when making decisions, even though there may be different rules attached to the different components making up your account.
At retirement, you will have the option to access the remaining balance of your savings component (or a portion of it) in cash, even if you have already taken a withdrawal during the same tax year. Cash withdrawals at retirement will be taxed according to the retirement fund lump sum tax table. You can also choose to use some or all of the funds to purchase a living annuity or a guaranteed life annuity.
The full value of your retirement component must be used to purchase an annuity, unless the de minimis rule applies.
Dipping into your retirement investment robs you of the full benefit of compounding. Accessing any part of your savings component before retirement will reduce the amount you will have available at retirement to purchase a retirement income product or to take as a cash lump sum. You will also lose out on the favourable tax treatment of taking a cash lump sum at retirement compared to making withdrawals before retirement.
For example, withdrawing R30 000 from your savings component before retirement could reduce the value of your investment at retirement by R130 000 in today’s money terms. Therefore, you should only consider withdrawing from your savings component under exceptional circumstances and as a last resort.
Visit our interactive two-pot savings tool to understand the impact of withdrawing from your savings component. The tool has been designed to show you the potential long-term growth in your investment if you choose to remain invested, as well as the tax you may have to pay if you choose to withdraw.
The tax treatment of contributions to retirement funds has not changed. The tax treatment of contributions to retirement funds will not change following the implementation of the two-pot system. Contributions to a retirement fund are tax-deductible up to 27.5% of the greater of taxable income or remuneration (excluding any retirement fund lump sum, withdrawal and/or severance benefits) per tax year, subject to a maximum of R350 000 per tax year. Any contributions above the maximum amount will be carried forward to the next tax year.
If you decide to withdraw from your savings component before you retire, the withdrawal will be taxed at your marginal tax rate.
When we receive your withdrawal instruction, we will apply for a tax directive from the South African Revenue Service (SARS). The tax directive will indicate the amount of tax that must be withheld from the withdrawal and paid to SARS. SARS may also include a deduction order (IT88) if you have any outstanding taxes, which we will need to apply to your withdrawal. We will then pay the after-tax amount to you.
These withdrawals will not reduce the tax-free withdrawal allowance available to you at retirement.
At retirement, you will have different options for the different components of your retirement account.
You will be able to withdraw the full amount available in your savings component. These withdrawals will be taxed according to the retirement fund lump sum tax table. Alternatively, you can transfer a portion or the entire amount to an annuity.
The full value of your retirement component must be used to purchase an annuity at retirement, unless the de minimis rule applies.
You will be able to withdraw from your savings component, provided you have not already taken your one withdrawal permitted in a given tax year.
You will not be able to withdraw from your retirement component.
If you transfer your investment to another retirement fund provider, you will need to transfer both the retirement and savings components of your account – they cannot be split.
You are also allowed to transfer from your savings component to your retirement component within the same investment. This is a one-way transfer, and you will not be able to undo the transfer if you require access to your retirement investment.
Click here for additional insights on the changes to the retirement system.
If you have been a member of the same provident or provident preservation fund since before 1 March 2021, and you were 55 or older on that date, you are automatically excluded from the two-pot retirement system, and it does not have any impact on you for this specific investment.
This means that your previous rights continue to apply for as long as you remain a member of the same fund.
However, you can opt in to the two-pot system if you prefer. If you decide to opt in:
- Your existing investment plus future growth will be vested.
- Your previous rights will continue to apply to your vested investment, i.e. it will not be impacted by two-pot.
- Your future contributions, where applicable, will be subject to the rules of the two-pot system, including seeding. See the section titled I have been a member of an Allan Gray retirement fund since before 1 September 2024 for more details on how your account will be treated.
If you are not opted in to the two-pot system (see the question above), your previous rights will continue to apply for as long as you remain a member of the same provident or provident preservation fund. This means that in a provident fund, you can only access your retirement investment before retirement if you resign. For a provident preservation fund, you are usually allowed one withdrawal prior to retirement, subject to the rules of your original fund, regardless of your employment status. These withdrawals are taxed according to the retirement fund withdrawal tax table.
When you retire from your provident or provident preservation fund, you will be able to access up to 100% of your benefit in cash. These withdrawals are taxed according to the retirement fund lump sum tax table.
Click here for additional insights on the changes to the retirement system.
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