How the two-pot system affects you: Everything You Need to Know in 2025

Imagine you’re a South African worker earning R30,000 a month, trying to save enough for a comfortable retirement. You’ve heard about the new Two-Pot Retirement System that started on 1 September 2024 but aren’t sure how it changes your savings, tax deductions, or access to your money before retirement. This guide breaks it all down for you in clear terms, with real numbers and practical steps tailored to South African workers in 2025.

What Is the Two-Pot System?

The Two-Pot Retirement System is a major change in how your retirement savings are structured in South Africa, effective from 1 September 2024. Instead of having all your retirement contributions in one pot, your savings are now split into two main components:

• Vested Pot: This contains all your retirement savings accumulated up to 31 August 2024, plus any returns earned since then. No new contributions go here. You can access this pot under the old rules — for example, if you resign or retire.
• Savings Pot: Starting 1 September 2024, one-third of your retirement contributions (after fees and risk costs) go into this pot. It includes a “seed capital” transfer from your vested pot, capped at 10% of your vested savings or R30,000, whichever is less. You can withdraw from this pot once per tax year with a minimum withdrawal of R2,000.
• Retirement Pot: The remaining two-thirds of your retirement contributions go into this pot and are locked until you retire (minimum age 55) or die.

This setup allows you to access some of your retirement savings in emergencies without cashing out your entire fund, helping protect your long-term retirement security while giving you some financial flexibility.
Sources: Liberty, Lockton, FSCA

How Retirement Annuities Work in South Africa (2024 Regulations)

Retirement annuities (RAs) remain a popular way to save for retirement in South Africa. Here’s what you need to know about how they work alongside the Two-Pot System and SARS rules in 2024:

• Tax Deduction Limit: You can deduct contributions up to 27.5% of your taxable income or remuneration, capped at R350,000 per year, whichever is lower.
• Withdrawals: You cannot access your RA funds before age 55 except in special circumstances (like total disability). This is separate from the Two-Pot System, which applies mainly to occupational funds.
• Taxation on Withdrawals: Amounts withdrawn before retirement are taxed according to SARS withdrawal tables, but upon retirement, withdrawals are more tax-efficient.
• TFSA Limits: Tax-Free Savings Accounts (TFSAs) allow you to save up to R36,000 annually and R500,000 lifetime limit with no tax on withdrawals, but they do not count as retirement funds.

It’s important to differentiate between RAs, occupational pension funds, and TFSAs when planning your retirement savings.
Sources: SARS, Investec

Step-by-Step Retirement Planning Guide with Real Examples

Let’s take the example of Sipho, who earns R30,000 monthly (R360,000 annually). He wants to understand his contributions, tax deductions, and what he can access under the Two-Pot System.

Step 1: Calculate Maximum Tax Deductible Contribution

Sipho can deduct up to 27.5% of his taxable income, capped at R350,000.

• 27.5% of R360,000 = R99,000
• Since R99,000 < R350,000, the deductible limit is R99,000 annually or R8,250 monthly.

Step 2: Understand Contribution Split from 1 September 2024

Assuming Sipho contributes R8,250 monthly to his occupational retirement fund:

• One-third (approx. R2,750) goes to the Savings Pot (accessible once a year with a minimum R2,000 withdrawal).
• Two-thirds (approx. R5,500) go to the Retirement Pot (locked until age 55).

Step 3: Seed Capital Transfer

If Sipho had R200,000 in his fund as at 31 August 2024:

• 10% of R200,000 = R20,000 seed capital moves to Savings Pot.
• This amount is available for withdrawal subject to the rules.

Step 4: Withdrawal Tax Implications

If Sipho withdraws R10,000 from his Savings Pot, SARS will tax this at his marginal rate. If his annual income is R360,000, his marginal tax rate is 26% (2024 tax tables), so tax payable is R2,600.

Net withdrawal = R10,000 – R2,600 = R7,400.

Step 5: Retirement Withdrawal

At retirement (age 55+), Sipho can access his Retirement Pot. The first R500,000 is tax-free, and amounts above that are taxed on a sliding scale.
Sources: SARS, FSCA, Liberty

Tax Benefits and Deductions: Exact Amounts and Calculations

The South African Revenue Service allows you to deduct retirement fund contributions against your taxable income with these limits:

Parameter	2024 Limit
Maximum deductible contribution	27.5% of taxable income or remuneration
Annual cap on deduction	R350,000
TFSA annual contribution limit	R36,000
TFSA lifetime contribution limit	R500,000

For example, if your taxable income is R500,000 per year, your maximum deductible contribution is 27.5% of R500,000 = R137,500 (below the R350,000 cap). Contributions above this limit will not be tax-deductible but will still grow tax-free in the fund.

Remember, the Two-Pot System affects occupational funds, but RAs remain subject to these deduction limits. Contributions to TFSAs do not provide tax deductions but offer tax-free growth and withdrawals.

Retirement Annuity (RA) vs Tax-Free Savings Account (TFSA): A Detailed Comparison

Feature	Retirement Annuity (RA)	Tax-Free Savings Account (TFSA)
Contribution Limit	27.5% of taxable income, max R350,000/year	R36,000/year, R500,000 lifetime
Tax Deduction	Yes, on contributions within limit	No
Withdrawal Age	From age 55 (exceptions apply)	Any time
Tax on Withdrawals	Tax-free up to R500,000 at retirement, then sliding scale	Tax-free always
Access to Funds	Locked until retirement	Fully accessible
Investment Options	Varies by provider (often more conservative)	Broad, including stocks, ETFs, bonds

If you want long-term retirement savings with tax deductions, RAs are ideal. For flexible, tax-free savings without deductions, TFSAs are better.

How to Choose the Right Retirement Product

Consider the following when choosing between retirement annuities, occupational funds under the Two-Pot System, or TFSAs:

• Your Age and Retirement Horizon: Younger workers can benefit more from long-term growth in RAs and occupational funds.
• Need for Access to Funds: If you want access before retirement, the Savings Pot under the Two-Pot System or TFSAs provide that.
• Tax Benefits: Use RAs and occupational funds to reduce taxable income via deductions.
• Risk Tolerance and Investment Choice: Some providers offer more aggressive growth options; others focus on capital preservation.

Popular providers in South Africa offering these products include Allan Gray, Coronation, Satrix, and EasyEquities. Fees and investment options vary, so compare carefully:

Provider	Typical Fees	Key Benefits
Allan Gray	Approx. 0.75% – 1.00% p.a.	Strong long-term performance, conservative to balanced portfolios
Coronation	Approx. 0.80% – 1.10% p.a.	Diverse funds, good track record
Satrix	Low-cost ETFs, approx. 0.25% – 0.40% p.a.	Cost-effective, passive investment approach
EasyEquities	Low-cost platform, fees vary by product	Access to local and global ETFs and shares, user-friendly

Common Retirement Planning Mistakes to Avoid

• Withdrawing too early from the Savings Pot or TFSA without a real emergency reduces your retirement nest egg.
• Ignoring the 27.5% deduction cap and over-contributing without tax benefits.
• Not registering for tax with SARS, which is required to withdraw from the Savings Pot.
• Failing to update beneficiary details on your retirement fund.
• Choosing high-fee products without considering long-term impact on returns.
• Not reviewing your portfolio regularly to adjust for risk and goals.

How to Get Started: Specific Steps and Providers

1. Register with SARS: If you plan to withdraw from the Savings Pot, ensure you are registered for tax and have no outstanding returns or debts.
2. Evaluate Your Current Retirement Savings: Know your vested pot balance as of 31 August 2024 and understand your seed capital.
3. Choose a Retirement Product: Research providers like Allan Gray, Coronation, Satrix, and EasyEquities. Compare fees, investment options, and flexibility.
4. Calculate Your Contribution: Use your salary to figure out how much you can contribute tax-efficiently (max 27.5% up to R350,000).
5. Set Up Contributions: Arrange monthly contributions through payroll or directly with your provider.
6. Plan for Emergencies: Know you can withdraw from your Savings Pot once per tax year with a minimum of R2,000 if needed.
7. Review Annually: Track your savings growth, tax deductions, and adjust contributions or investment choices as your needs change.

Conclusion: Clear Next Steps

To secure your retirement in 2025 and beyond, start by understanding your Two-Pot balances and how the new rules affect your access to funds. Maximise your tax deductions by contributing up to 27.5% of your income (capped at R350,000) to retirement funds. Don’t forget about the flexibility TFSAs offer alongside your retirement savings.

Contact trusted providers like Allan Gray, Coronation, Satrix, or EasyEquities to compare options and fees. Register with SARS and keep your tax affairs in order to make withdrawals smooth if needed. Finally, plan your contributions and withdrawals carefully to avoid penalties and maximise your retirement nest egg.

By following these practical steps and understanding the Two-Pot System, you can confidently navigate your retirement planning and build a financially secure future.