What you should know about the 2-pot retirement system in South Africa

What is the two-pot retirement system?

With the two-pot system, retirement contributions will be split into, as the name suggests, two pots. One savings component and one retirement component. 

The way the funds will be split is that one third of retirement contributions will be split into a savings pot and the other two thirds will be allocated to retirement contributions. The retirement contributions will be seen as the compulsory preservation. These funds can only be accessed at 55 years or older.

This two-pot system was originally proposed in response to people having no money, even though they had retirement funds, to access during the Covid-19 pandemic. 

What is the implementation date?

On 1 March 2024, retirement fund members will be able to immediately get access to their savings pot. This can amount to a minimum of 10% of their total retirement savings or R 2000, with a maximum amount of R25 000. 

This comes after the National Treasury wanted to delay the implementation to 1 March 2025.

Who does it apply to/ who qualifies?

Any South African who has a pension fund, provident fund, retirement annuity (RA) or a preservation fund.

Will I get my provident fund if I resign?

You can get your provident fund if you resign or you can move it to a preservation fund with your next employer. This will mean that you can preserve your retirement funds you’ve already accumulated using a preservation fund. 

Can you withdraw from your provident fund while still working?

If it does go into effect by 1 March 2024, you will be able to withdraw up to 10% of your retirement savings each tax year. 

When the bill comes into effect, 10% of your total retirement savings will be moved over to a savings pot. This is amount you will be able to access before retirement. It's also important to note that you will be taxed on this withdrawal amount, usually at your marginal tax rate.

Things you should know before withdrawing from your retirement savings pot:

• You will be taxed on the amount you withdraw. This means the amount you withdraw won’t necessarily be the amount you actually get out. 
• Taking money out of your retirement fund can negatively affect how much you end up retiring with. Remember with retirement savings, the beauty is with compound magic. The longer you have your money saved, the more interest you will be able to earn on that money. You rob yourself of all the potential interest you could be earning by accessing this money earlier. 

“If I had a choice between cashing in my pension fund and going into debt counselling for a few years to get on top of my debt, but to keep my pension fund, well that would definitely be the route I would go. 

Debt counselling has the ability of getting you on top of your debts. It can reduce your monthly outgoings. It can reduce your interest rate on those debts. In just a short time, you can be debt-free. 

So if you’re somebody in your late 40s or 50s and you’re still carrying a lot of debt, debt counselling is a great idea to clean out the decks as you prepare for retirement.” - Founder & CEO of Meerkat, David O’Brien

Johan signed up for debt counselling at Meerkat to retire debt-free and reduced his monthly debt instalment by 45%!

Johan's financial situation was becoming overwhelming before he decided to seek help from debt review at Meerkat. With most of his salary going towards servicing his debt, Johan knew he wouldn't be able to achieve his dream of being debt-free by retirement without taking action. Thankfully, through debt review, Johan was able to significantly reduce his monthly debt instalment by an impressive 45%. Additionally, the average interest rate on his debt was reduced from a staggering 21.56% to an incredibly low 0.09%. Thanks to Meerkat's assistance, Johan is now on track to be completely debt-free by June 2028. His participation in the City Press/ Absa Money Makeover Challenge 2023 led him to the valuable advice of undergoing debt review, a decision that has truly transformed his financial future.

Who is Meerkat?

Meerkat is a financial wellness company that wants to help South African consumers do MORE with their money. We can help with debt repayment negotiations, provide affordable insurance and help you kickstart an emergency fund

Fill in the contact form on our website to receive a free callback from the Meerkat team today.