Time to Get off the Pot

Warren Wilkinson

Warren Wilkinson from Consult by Momentum shares the 3 most important things you need to know about the two-pot system before 1 September.

If you haven’t been paying attention up until now – perhaps thinking that it all seems to be a bit of a storm in a two-pot –  it’s now time to get off the proverbial pot and get your head around what the new retirement rules mean for your retirement savings, as this system “will fundamentally change how your retirement savings are structured, says Warren Wilkinson, Certified Financial Planner® and Franchise Principal at Consult by Momentum. 

“The two-pot system was devised in response to the reality that in a financial emergency, many South Africans do not have adequate savings and thus resign from their jobs to access their retirement savings. 

“This not only causes severe headaches for companies but also means that fund members won’t have enough to see them comfortably through their golden years. 

 “The new two-pot system aims to promote the preservation of retirement savings, while also providing a source of funds that can be accessed immediately in the event of an emergency.” 

Ahead of 1 September, Wilkinson shares the three most important things you need to know about the new two-pot system, before it comes into legislation. 

There are actually three pots, not two.

Wilkinson explains that – contrary to its name – the new retirement system involves three pots: a Vested Pot, Savings Pot and Retirement Pot. “After 1 September, you’ll have immediate access to a cash portion of your retirement savings via the Savings Pot, while preserving the rest for your later years via the Retirement Pot.” 

He explains that the Vested Pot is made up of your accumulated retirement savings as of 31 August 2024. “This money is protected, and the two-pot rules will not apply. 

“On 1 September 2024, your fund will make a once-off transfer of 10% of your Vested Pot or R30 000 (whichever is the lower amount) to your Savings Pot, which will act as an opening balance.” 

From 1 September onwards, one-third of members’ retirement contributions will go into their Savings Pot. “The Savings Pot is there to allow you to access funds in an emergency, and you can dip into this pot only once every tax year. The minimum withdrawal amount is R2000 and is taxed at your marginal income tax rate. You will also pay a processing fee, explains Wilkinson. 

“Also from 1 September onwards, two-thirds of your retirement contributions will go into your Retirement Pot. You can only access this pot at retirement and must use the full amount to buy a pension.”

Wilkinson adds that while the new system will apply to all South Africans – regardless of whether they have a provident fund, pension fund, preservation fund or retirement annuity – an exception was made for provident fund members aged older than 55 years on 1 March 2021. “These members can continue under the old system or change to the new one, should they prefer.”

The new rules also apply to additional contributions

Wilkinson explains that an additional voluntary contribution (AVC) is an extra payment one can make on top of their regular retirement contributions, to boost their retirement savings. 

“Under the new system, members will not be able to put the full AVC into their Savings Pot. As with their normal monthly contributions, one-third of AVCs will be transferred to their Savings Pot and two-thirds to their Retirement Pot.”

You don’t have to dip into your Savings Pot

Just because you can, doesn’t mean you should, says Wilkinson. “I encourage my clients to do their best to forget about their Savings Pot, if possible, as it is ultimately there to provide for their retirement.

“If left alone, your Savings Pot will continue to grow, and help ensure you retire more comfortably.”