Two-Pot Retirement System Launches in September 2024

Finance Minister Enoch Godongwana has responded to public calls for expedited access to a portion of retirement savings by announcing the implementation date of the two-pot retirement system as September 1, 2024. Originally slated for March 1, 2024, the date was pushed back due to industry requests for more time to smoothly implement the complex changes required.

How the System Operates

Contributions to retirement funds will be divided, with one-third directed to a ‘savings pot’ and two-thirds to a ‘retirement pot.’ Members can withdraw from the savings pot before retirement while the retirement component remains protected. Savings accumulated until September 1 will generally be unaffected, except for the ‘seed capital’ amount.

The ‘seed capital,’ the lower of 10% of the fund value on August 31, 2024, or R30,000, will be transferred to the ‘savings’ pot. This seed capital will continue growing with the fund’s investments’ performance. Fund members can withdraw from the savings component in case of financial emergencies, limited to one withdrawal per tax year, with a minimum amount of R2,000.

Tax Implications

Withdrawals from the savings pot before retirement will be taxed at marginal rates, contributing an estimated additional R5 billion to government revenue in the 2024 tax year. Amounts left in the savings component upon retirement will be taxed according to the retirement lump sum table, including a tax-free lump sum of R550,000.

Treasury advises against unnecessary withdrawals, emphasizing the compound growth potential of retained retirement savings, which can attract lower tax rates. The initial seeding of the savings pot is a one-time event, ensuring flexibility for future withdrawals beyond the initial seed capital amount.