Draft:Two-Pot System Retirement

The Two-Pot System has been created for any South African who has a preservation fund, pension fund, retirement fund and provident fund. It was created by the South African government aiming to assist people cope with their challenging financial situation and emergencies. This system retirement allow limited withdrawals of up to a third of one's retirement funds.

Retirements

The two-pot system is a small portions of your retirement savings for in times of need. The this retirement system was implemented on 1 September 2024, stated that every contributions made after this date will be split in to a vested components, savings components, and retirement component. One third of retirement funds are preserved in a savings components that can be accessed anytime, while the two-thirds are reserved for retirement to ensure financial security. If you are a member of a provident fund and you were 55 years or older starting from 1 March 2021, you will be excluded from the two-pot system unless if you want to participate. From the month after you made your election of claiming to participate, your contributions will be placed to the savings and retirement components while existing benefits will be vested.

The Three Components

The Vested Component

This component is made up of your retirement savings as from 31 August 2024, This money will be protected and the two pot rules will not apply to it. 10% (R30 000) will be transferred to the saving components.

The Two components

Saving Components

This is the money that you will use for emergencies and can be claimed only once a year. The minimum withdrawal fee amount is R2 000 and will be taxed at your marginal income tax rate, processing fee will also be paid. One third of your contribution will go into your saving component .

The retirement component

You can only access this components at retirement and must be used to buy a pension. Two thirds of your contribution will go into your retirement components.

Withdrawals

In the two-pot retirement system, the withdrawal from saving pot is done once in a year (12 - months period), therefore it is advised that every retired person must understand the long-term financial impact of withdrawing from these savings.

Tax

Any amount accessed in cash as a savings withdrawal benefit will be taxed at your marginal income tax rate, which will depend on your yearly taxable income. The retirement fund will be taxed by South African Revenue Service (SARS) before paying you your benefit.