What the Two-Pot Retirement System Means for Your Long-Term Savings
- The two-pot retirement system, introduced on 1 September 2024, lets members withdraw a portion of their retirement savings
- The National Treasury says that the system aims to provide short-term financial relief while protecting long-term retirement savings
- Many people want to access their savings under the two-pot system, but current rules allow withdrawals of only a minimum of R2,000 and just once per tax year
- Naheem Essop, Deputy Pension Funds Adjudicator, spoke to Briefly News about the limitations of the system
The two-pot retirement system marked its first anniversary since its launch on 1 September 2024, but many people still struggle to understand how it works. The system gives members limited access to a portion of their retirement savings while they are still employed, without needing to resign.
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Withdrawals must be at least R2,000
Many people are keen to access their savings under the two-pot system, but current rules allow withdrawals of at least R2,000 once per tax year, up to the total amount in the savings pot. Withdrawals are taxed at your marginal income tax rate, and any outstanding debt to SARS may reduce the amount you can access. Despite significant efforts by the retirement funds industry to educate members at the time the system was introduced, misunderstandings remain, leading to complaints being filed with the Office of the Pension Funds Adjudicator (OPFA).
Deputy Pension Funds Adjudicator Naheem Essop recently dismissed two similar complaints, stating that the funds acted lawfully by refusing multiple withdrawals from the savings pot and any withdrawals from the vested pot. Speaking to Briefly News, he explained that their actions were in line with both fund rules and national legislation.
Essop explained that the new two-pot retirement system splits contributions into three parts. The vested pot includes all money saved before 1 September 2024 and still follows the old rules. The savings pot contains your starting balance, known as seeding capital, plus one-third of new contributions. You can withdraw from this pot before retiring or leaving your job, but only once per tax year, and each withdrawal must be at least R2,000. There’s no maximum withdrawal limit, and the balance can keep growing. The retirement pot holds the remaining two-thirds of new contributions, which can only be accessed once you retire.
Short-term relief with long-term retirement security
Essop stated that while there is growing public interest in being able to make multiple withdrawals from the savings pot within a single tax year, driven by financial hardship and the need for greater access to funds, the OPFA evaluates complaints about withdrawal limits according to existing legislation.
He said that the National Treasury has stressed that the two-pot system is intended to balance short-term relief with long-term retirement security, and allowing multiple withdrawals could jeopardise this goal by reducing members’ retirement savings.
Complaints being filed
Essop explained that a recent complaint to the OPFA involved a member who wanted a second withdrawal from his savings pot under the two-pot retirement system. The savings pot is initially funded by a seeding capital of 10% of retirement savings (capped at R30,000) and thereafter by one-third of contributions made after 1 September 2024. The complainant, who had a paid-up retirement annuity with no contributions after 2014, received his full savings component of R21,937.23 in September 2024 but requested another withdrawal, claiming the fund’s refusal was irrational.
The fund explained that without new contributions after 1 September 2024, no further allocations could be made to the savings pot. Essop ruled that the complainant was only entitled to the seeding capital already withdrawn, and since no further contributions had been made, no additional withdrawal was possible. The complaint was therefore dismissed.
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Another complaint to the OPFA involved a member who wanted access to his vested component under the two-pot retirement system. The complainant held a retirement annuity policy issued in 2002, which was made paid-up in 2008. He had previously withdrawn R4,205.70 from his savings component in October 2024 but requested payment from his vested component, arguing that financial hardship should allow access.
The fund explained that full access to the vested component is only allowed at retirement age (55 years or older), or under specific conditions such as permanent disability, emigration, or if the combined value of retirement and vested components is below R15,000. As the complainant did not meet any of these criteria and his policy value exceeded R15,000, he was only entitled to his savings component. Essop ruled that the fund had acted according to the law and its rules, and the complaint was dismissed.
3 More stories about the two-system
- Briefly News previously reported that a woman shared that she had faith in the two-pot system to help her out financially.
- A South African woman who tried checking the two-pot system online, and showed she received a technical error message.
- A woman showed people that she would be taxed just under R8 500 if she had to take the maximum amount from the retirement fund.
Disclaimer: The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of Briefly News.
Source: Briefly News
