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The Two-Pot Retirement System
Understanding the Changes and How They Affect You
The Two-Pot Retirement System has changed how you manage your retirement savings. This system is designed to do the following:
- Provide both flexibility and security.
- Help you save more for retirement, preserve your savings, and improve your retirement planning.
- Safeguards your retirement assets from being accessed prematurely or lost due to financial difficulties.
- The savings component allows you to withdraw a portion of your retirement money once a year, reducing the need to leave your current work.
Your retirement fund is divided into three components:
The vested component includes all retirement savings made before 1 September 2024 plus investment growth on this balance in the future. This component remains under the existing rules. When you leave your employer, you have the option to:
- Leave your money in the Fund.
- Take your money in cash.
- Transfer the money to another fund.
This component cannot be accessed before retirement. The full amount must be used to buy a pension upon retirement. From 1 September 2024, this comprises two-thirds of your contributions, investment returns accruing from 1 September 2024 and any amounts transferred into the Fund from a retirement component into another fund, accessible only at retirement, even if you change employers or withdraw from the Fund.
Under the new Two-Pot Retirement System (effective 1 September 2024), you can withdraw a portion of your retirement money from the savings component once per year, without leaving your employer.
Here is how it works:
Funding of the savings component:
It is funded by one-third of your retirement contributions made from 1 September 2024 onwards.An initial amount (seed capital) is transferred from your vested component on a once-off basis to help build this pot.
Withdrawal rules:
- Minimum withdrawal: R2,000 (before fees and taxes).
- Maximum withdrawal (initially): 10% of your vested component or R30,000, whichever is lower.
- Taxation: Withdrawals are taxed at your marginal income tax rate.
- Purpose: Withdrawals are intended to help in cases of financial emergencies, not for discretionary spending.
Access to Your Savings Component as of 1 September 2024
On 1 September 2024, you were able to access:
10% of the value of your share in a retirement fund (vested component) accumulated before 1 September 2024, subject to a maximum of R30,000, whichever amount is less.
This was a once-off event.
From 2025 onwards, retirement fund members will be able to withdraw a minimum amount of R2,000 of the accumulated fund credit post 1 September 2024 annually.
The Impact of the Two-Pot Retirement System on retirement benefit
While the two-pot retirement system provides flexibility through the savings pot, pre-retirement withdrawals can reduce the total value of the retirement benefits. The impact depends on the amount and the frequency of the withdrawals. It is crucial for members to balance their short-term financial needs with long-term retirement goals to optimise their overall retirement benefit
Important Dates:
1 August 2024: MWPF will automatically transfer 10% of your retirement savings or R30,000, whichever is less, to your Savings Component.
1 September 2024: The two-pot retirement system takes effect, and no further contributions will be made to your Vested Component.
Example:
Let's say you have R300,000 in your retirement savings on 31 August 2024, and your monthly net retirement contribution is R1,200.
Before 01 September 2024:
Your entire R300,000 would be considered your Vested Component. You could withdraw this amount if you left your employer.
After 01 September 2024:
Vested Component: R270,000 (R300,000 minus R30,000)
Savings Component: R30,000 (deducted from your vested component)
Retirement Component: R800 per month (two-thirds of R1,200)
Savings Component: R400 per month (one-third of R1,200)
Members of a provident fund 55 years and over on 1 March 2021
Members of a Provident Fund Aged 55 and Over on 1 March 2021 Members who were 55 years or older on 1 March 2021 and remained members of the Fund until 1 September 2024 had the option to either: Elect to participate in the Two-Pot Retirement System, or Continue contributing under the pre-1 March 2021 regime. If such members did not opt into the Two-Pot Retirement System but subsequently transferred to another fund after 1 September 2024, they were automatically enrolled in the Two-Pot Retirement System.