Two-pot withdrawals: What you need to know

Key takeaways:

• The two-pot system splits retirement contributions: One-third into a savings pot, two-thirds into a retirement pot
• You can make one withdrawal per tax year from your savings pot, with a minimum withdrawal of R2 000
• SARS taxes each withdrawal at your marginal income tax rate
• Leaving your savings untouched could grow your money significantly more than making regular withdrawals
• Try to avoid withdrawing from your savings pot unless it’s a genuine emergency

Can you withdraw from your retirement savings under the two-pot system?

Yes, but only from the savings pot, and only once per tax year.

South Africa's two-pot system gives you limited access to a portion of your retirement money, while protecting the rest for retirement.

What is the two-pot retirement system?

South Africa's two-pot retirement system launched on 1 September 2024. It splits your retirement savings into 2 main components. Each component has its own access rules.

If you had retirement savings before 1 September 2024, you'll also have a third component.

• Savings pot: One-third of your retirement contribution goes here. You can access this once per tax year
• Retirement pot: Two-thirds goes here. You can only access this once you retire
• Vested component: Money saved before 1 September 2024 stays here under the old retirement fund rules

How does the two-pot system work in South Africa?

The two-pot system is designed to help you in emergencies without forcing you to cash out your full retirement savings.

Every contribution made from 1 September 2024 is split between your savings and retirement pots.

What this means for you:

• You have limited access to emergency funds if needed
• Your retirement pot remains protected for the long term
• You can only access your savings pot once per tax year
• Your savings pot is not meant for everyday spending
• When the system launched, up to 10% of your vested component (capped at R30 000) moved to your savings pot – giving you an opening balance to access straight away

Who can make a two-pot withdrawal, and when?

You can apply for a withdrawal if you belong to a registered retirement fund, including pension funds, provident funds and retirement annuities. You can make 1 withdrawal from your savings pot per tax year.

Resigning does not unlock your retirement pot for contributions made after 1 September 2024.

What are the real costs of withdrawing from your savings pot early?

Withdrawing from your savings pot can reduce the amount you receive now and the money you’ll have later in retirement.

• Tax: SARS taxes your withdrawal as ordinary income, not at the more favourable retirement lump-sum rate
• Fees: Your retirement fund may charge admin or processing fees
• Lost compound growth: Every rand you withdraw stops compounding immediately

When is it wise to use your savings pot?

Your savings pot should ideally be used only for serious financial emergencies.

You may consider withdrawing for:

• Unexpected medical expenses not covered by medical aid
• Losing your income with no emergency savings available
• Preventing repossession of an essential asset

Avoid using it for:

• Holidays or lifestyle spending
• Non-essential purchases or upgrades
• Settling low-interest debt unnecessarily

This article is for general information only and does not constitute financial advice. Speak to a registered financial adviser before making any withdrawal decision.