South Africa’s Two-Pot Retirement System in 2025: Everything You Need to Know

Since the 1st of September, South Africa introduced a two-pot retirement system where retirement fund members are allowed to make partial withdrawals from their retirement before time. In this article, we will discuss:

• What the two-pot retirement system is all about.
• The portion you are allowed to withdraw.
• What about your existing savings.
• The benefits and disadvantages, and
• How it will affect your retirement planning.

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What is the Two-Pot Retirement System?

The two-pot retirement system allows South Africans to withdraw a portion of their retirement savings for emergencies. This system was introduced to help South Africans overcome their money emergencies without destroying their long-term financial security. The system divides your retirement funds into two portions:

1. The savings Pot- One third of the money that can be accessed at any point in time incase of emergencies
2. Retirement Pot: Two-thirds of the money that is preserved and cannot be accessed until official retirement.

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When Did the Two-Pot System Start?

The two-pot system implementation date commenced on the 1st of September 2024 in South Africa. The system applies to all retirement funds, like pension funds, provident funds, and retirement annuities. This was done to help South Africans balance financial flexibility and encourage the preservation of savings.

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The Two-Pot System Dynamics

Every retirement contribution mentioned above will now be split into two pots:

1. Retirement Pot (Preservation Pot)

This is the portion of your money that will not be accessed until you have officially retired. The preservation pot ensures that you have enough money to sustain yourself after retirement. The retirement pot holds two-thirds of your retirement contributions.

2. Savings Pot (Accessible Pot)

The savings port is the one-third of your retirement contribution that you can access in case of emergencies or money troubles. You are allowed to withdraw from this pot only once a year, and the money is subject to tax.

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How Much Money Are You Allowed To Withdraw?

With the introduction of the two-pot system, you can only withdraw from your savings pot, and you can only withdraw once a year. You can either withdraw part of the accumulated balance or withdraw it all for that year. The money will be taxed at your marginal tax rate. For example, if you have R50,000 on your pot, you can choose to take part of it or all of it at once, and the money will be taxed.

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What About The Existing Retirement Savings?

Any retirement contributions made before the 1st of September 2024 remain under the old rule, and you cannot access any portion of the money until your official retirement. The two-pot system only applies to the new contributions made after the 1st of September 2024.

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What is The Benefits of the Two-Pot Retirement System?

1. The two-pot system allows you access to your savings in times of need, which helps South Africans avoid unnecessary debts when they have money stashed away
2. The system encourages financial security for the future by allowing to only access one-third of your retirement savings while saving the rest for when you retire
3. The limited withdrawals to once a year promotes financial discipline
4. The system encourages you to save for the future by making the contributions tax-deductible.

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Challenges of the Two-Pot Retirement System

1. Allowing withdrawals from your retirement savings pot every year reduces the total retirement package amount that you could have gotten if the retirement savings remained untouched
2. The money is usually less than the actual amount withdrawn because of tax
3. The implementation of the two-pot system may cause administrative delays as administrators adjust to the system.

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How Should You Prepare for the Two-Pot System?

1. Seek advice from either a financial advisor or your retirement administrator to understand how the system works and how your money will be split.
2. Just because you can withdraw does not mean you have to, save your withdrawal for only when you are in need or you have money troubles; in that way, you don’t harm your long-term savings.
3. Create an emergency savings account; in that way, you don’t rely only on the savings pot.
4. Consider increasing your retirement contributions to maximize growth.

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The Impact of the Two-Pot System on Retirement Planning

The two-pot system allows you to tap into part of your retirement savings so that you balance short-term financial needs with long-term goals 

Consider:

• Not withdrawing all your money from the savings pot so that your retirement fund pays better when you retire
• Increasing the amount you contribute to offset withdrawals
• Seeking advice from a financial advisor on how to get a better deal out of your retirement.

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Conclusion

The South African two-pot retirement system has been implemented since the 1st of September 2024. This system allows you access to a third of your retirement money to withdraw once a year in case of emergencies, which helps you avoid unnecessary loans and still encourages you to save for the future with the two-thirds of the retirement fund remaining untouched. For a better retirement package, make sure to only cash out when you are in need, and do not be tempted to cash out all the money from the savings pot at once, be wise and only cash out the money you need to allow your retirement pot to grow. In case of confusion, try seeking advice from a financial advisor to make a plan that will benefit you the most when you retire.