Understanding the two-pot system

What is the two-pot system?

The two-pot retirement system is a major change to South African retirement funds that took effect on 1 September 2024. It splits your retirement savings into separate components with different access rules.

• Early access: Access a portion of your retirement savings once per tax year

• Retirement protection: Two-thirds of your contributions remain locked for retirement

• Previous savings preserved: Funds accumulated before September 2024 follow the old rules

This system gives you limited flexibility for emergencies while protecting most of your retirement savings for when you need them.

The three components explained

Under the two-pot system, your Retirement Annuity is divided into three separate components:

Your RA account in Fynbos shows each component separately so you can track your balances across all three.

Your savings component

The savings component (or "savings pot") receives one-third of all contributions you make from 1 September 2024 onwards. This is the only portion of your retirement savings you can access before retirement.

Key features:

• Receives 1/3 of every contribution you make

• Grows with investment returns like the rest of your RA

• Can be withdrawn once per tax year (minimum R2,000)

• Taxed at your marginal income tax rate when withdrawn

Seed capital: When the two-pot system launched, your savings component was seeded with 10% of your vested balance (accumulated before 1 September 2024), capped at R30,000. This gave you immediate access to some funds in the new system.

Your retirement component

The retirement component receives two-thirds of all contributions you make from 1 September 2024 onwards. This portion is locked until you reach retirement age.

Key features:

• Receives 2/3 of every contribution you make

• Cannot be accessed before retirement (age 55+)

• Grows tax-free while invested

• At retirement, amounts over R165,000 must be used to purchase an annuity

The retirement component ensures that most of your savings remain dedicated to their original purpose: providing income in retirement. This protects you from depleting your retirement savings before you need them.

Your vested component

The vested component contains all the money you saved before the two-pot system started on 1 September 2024. This money continues to follow the previous retirement rules.

At retirement, your vested component:

• Up to one-third can be taken as a cash lump sum (taxed according to retirement tax tables)

• The remaining two-thirds must be used to purchase an annuity

Before retirement:

• Cannot be withdrawn (except for emigration, disability, or small amounts under R15,000)

• Continues to grow tax-free

• Was reduced by the seed capital transferred to your savings component

The vested component is separate from the new two-pot rules and preserves your rights under the previous system.

Making a savings pot withdrawal

You can withdraw from your savings pot once per tax year (March to February). Before you withdraw, consider whether you truly need the funds, as withdrawals are taxed and reduce your retirement savings.

Requirements:

• Minimum withdrawal: R2,000

• Maximum withdrawal: Your full savings pot balance

• Valid tax number registered with SARS

• No outstanding tax returns with SARS

To make a withdrawal:

1. Navigate to your Retirement Annuity from the home screen

2. Tap Withdraw from savings pot

3. Enter the amount you want to withdraw

4. Review the tax implications shown on screen

5. Confirm the withdrawal

The withdrawal is processed and paid to your linked bank account. SARS withholding tax is deducted before payment.

Important: You can only make one savings pot withdrawal per tax year. Once you withdraw, you must wait until the next tax year (starting 1 March) before you can withdraw again.

Tax implications of withdrawals

Savings pot withdrawals are taxed at your marginal income tax rate. The amount you withdraw is added to your taxable income for the year.

How tax is calculated:

1. Your withdrawal amount is added to your annual taxable income

2. Tax is calculated at your marginal rate (18% to 45%)

3. A portion is withheld by the fund before payment

4. You may owe additional tax or receive a refund when you file your return

Example: If you earn R500,000 per year (36% marginal rate) and withdraw R20,000 from your savings pot, you could pay approximately R7,200 in tax on that withdrawal.

Warning: Withdrawing from your savings pot reduces your long-term retirement savings and triggers immediate taxation. Consider this carefully before proceeding.

Key things to consider

Before withdrawing from your savings pot, consider these factors:

When withdrawal might make sense:

• Genuine financial emergency with no other options

• Avoiding high-interest debt that costs more than the tax

• Preventing loss of essential assets

When to avoid withdrawal:

• For non-essential purchases or lifestyle expenses

• When you have other savings or emergency funds available

• If you're close to retirement and need maximum savings

The compounding cost: Money withdrawn from your RA loses decades of tax-free growth. A R10,000 withdrawal at age 35 could mean R80,000+ less at retirement (assuming 7% annual growth over 30 years).

Your contribution limits still apply: Withdrawing doesn't restore your annual contribution limit. The same 27.5% / R350,000 cap applies to all contributions, whether to savings or retirement components.

How contributions are split

Every contribution you make to your Retirement Annuity from 1 September 2024 is automatically split between your savings and retirement components.

Contribution split:

Your contribution → 1/3 → Savings component (accessible once per year) → 2/3 → Retirement component (locked until age 55+)

Example: If you contribute R3,000 per month:

• R1,000 goes to your savings component

• R2,000 goes to your retirement component

Both components are invested according to your chosen investment strategy and grow at the same rate. The only difference is when you can access them.