Two-Pot System 2024: Complete Guide to New Pension Rules

Meet Sipho, a 35-year-old Johannesburg IT professional earning R40,000 a month. Like many South Africans, Sipho worries about saving enough for retirement while juggling daily expenses, emergencies, and family needs. Until now, accessing his pension savings meant resigning or facing strict penalties. But from 1 September 2024, everything changes with the Two-Pot Retirement System. This guide breaks down exactly how the new rules work, what they mean for your money, and how to make smart choices for your future—using real numbers, clear examples, and practical steps any South African worker can follow.

What Is the Two-Pot System?

The Two-Pot Retirement System is South Africa’s biggest pension reform in decades. Starting 1 September 2024, every new rand you save for retirement in a pension fund, provident fund, or retirement annuity (RA) will be split into two separate pots: a Savings Pot and a Retirement Pot[1][5][7].

Here’s how it works:

• Savings Pot: One-third of your new contributions goes here. You can withdraw from this pot once per tax year, with a minimum of R2,000, without resigning or retiring. This is designed for emergencies, so you don’t have to cash out your entire retirement fund if you hit a rough patch[6][7].
• Retirement Pot: Two-thirds of your new contributions go here. This money is locked away until you retire. It’s protected to make sure you have income when you stop working[6][7].
• Vested Pot: Everything you saved before 1 September 2024 stays in a separate pot, following the old rules. You can’t add new money here, but it keeps growing with investment returns. You can still access this pot if you resign or are retrenched, just like before[5][7].

To kickstart the Savings Pot, up to 10% of your vested balance (capped at R30,000) will be moved into it when the system starts[5][6]. For example, if you have R100,000 saved by 31 August 2024, R10,000 moves to your Savings Pot. If you have R500,000, only R30,000 moves (since that’s the cap).

Who Is Affected?

The Two-Pot System applies to all active members of retirement funds—both private and public sector—including pension, provident, and retirement annuity funds[1]. If you’re already retired, or if you were 55 or older on 1 March 2021 in a provident fund and didn’t opt in, the old rules still apply to you[1].

How Retirement Annuities Work in South Africa

Retirement annuities (RAs) are tax-efficient savings products designed specifically for retirement. You contribute monthly or lump sums, and the money grows tax-free until you retire. At retirement, you can take up to one-third as a cash lump sum (taxed) and must use the rest to buy a pension income.

SARS Regulations and Deadlines

SARS allows you to deduct up to 27.5% of your taxable income (capped at R350,000 per year) for contributions to retirement funds (pension, provident, RA)[4]. This is a powerful tax break—for example, if you earn R40,000 a month (R480,000 a year), you can deduct up to R132,000 (27.5% of R480,000) from your taxable income if you save that much for retirement.

If you’re registered for tax, withdrawals from the Savings Pot are taxed at your marginal rate. If you’re not registered, you must register before you can withdraw[4]. SARS will also deduct any tax debt you owe from your withdrawal.

Remember: Contributions are not taxed, but withdrawals are. Always keep your tax affairs in order to avoid delays or penalties.

Step-by-Step Retirement Planning Guide (With Real Examples)

Let’s walk through how Sipho, our R40,000-a-month IT professional, can plan for retirement under the new rules.

1. Calculate Your Tax-Deductible Contribution Limit

Sipho earns R480,000 a year. He can contribute up to 27.5% of his income (R132,000) to retirement funds and deduct it from his taxable income. But the absolute maximum anyone can deduct is R350,000 per year, even if you earn millions.

2. Decide How Much to Save

Financial planners often recommend saving at least 15% of your income for retirement. For Sipho, that’s R6,000 a month (R72,000 a year). He can split this between his employer’s pension fund and a personal RA for extra flexibility.

3. Understand the Two-Pot Split

From 1 September 2024, every R3 Sipho saves is split: R1 to Savings Pot, R2 to Retirement Pot. If he saves R6,000 a month, R2,000 goes to Savings, R4,000 to Retirement.

4. Know Your Withdrawal Options

Sipho can withdraw from his Savings Pot once a year, minimum R2,000. But if he leaves the money invested, it keeps growing for retirement. Withdrawals are taxed as income.

5. Review Your Vested Pot

Everything Sipho saved before 1 September 2024 stays in the Vested Pot. He can access this if he resigns or is retrenched, but not for everyday emergencies.

Tax Benefits and Deductions (Exact Amounts and Calculations)

Let’s break down the tax benefits with real numbers.

Tax Deduction Example

If Sipho contributes R72,000 a year to his RA, he reduces his taxable income from R480,000 to R408,000. At a marginal tax rate of 26%, this saves him R18,720 in tax each year. That’s like getting a government bonus for saving.

Withdrawal Tax Example

If Sipho withdraws R20,000 from his Savings Pot in a year he earns R480,000, that R20,000 is added to his taxable income. At 26%, he’ll pay R5,200 tax on the withdrawal. The net amount he gets is R14,800.

Contribution Limits Recap

• Retirement fund contributions: 27.5% of taxable income, up to R350,000 per year
• Tax-Free Savings Account (TFSA): R36,000 per year, R500,000 lifetime limit
• Two-Pot System: 1/3 to Savings Pot (accessible), 2/3 to Retirement Pot (locked until retirement)

RA vs TFSA: Detailed Comparison

Both RAs and TFSAs help you save, but they work differently.

In short: Use an RA to save for retirement and cut your tax bill. Use a TFSA for flexible, tax-free savings you can access anytime.

How to Choose the Right Retirement Product

South Africa has many providers, each with different fees, investment options, and service levels. Here’s a quick comparison of some top choices:

Allan Gray

Known for strong long-term returns and a focus on active management. Fees are competitive, and you can choose from a range of unit trusts. Good for hands-on investors who want to tailor their portfolio.

Coronation

Another active manager with a solid track record. Offers a variety of funds, including socially responsible options. Slightly higher fees, but strong performance in some market conditions.

Satrix

Specializes in low-cost index-tracking funds (ETFs). Ideal for cost-conscious investors who want broad market exposure without high fees.

EasyEquities

Makes investing accessible with low minimums and user-friendly platforms. Offers both retirement and TFSA products. Great for beginners or those who want to start small.

What to Look For

• Fees: Compare total expense ratios (TERs). Even small differences add up over decades.
• Performance: Look at long-term returns, not just recent years.
• Flexibility: Can you adjust contributions, switch funds, or access your Savings Pot easily?
• Service: Is there good customer support, online tools, and educational resources?

Common Retirement Planning Mistakes to Avoid

Even smart people make mistakes. Here’s what to watch out for:

• Cashing out when changing jobs: It’s tempting to take the cash, but you lose years of growth and pay heavy tax.
• Not saving enough: Aim for at least 15% of your income, more if you start late.
• Ignoring fees: High fees can eat up a third of your retirement savings over time.
• Taking on too much risk—or too little: Balance growth and safety based on your age and goals.
• Not reviewing your plan: Life changes. Review your retirement plan at least once a year.

How to Get Started (Specific Steps and Providers)

Ready to take control of your retirement? Follow these steps:

1. Check your current savings: Log in to your pension or RA provider’s website and see where you stand.
2. Set a savings goal: Decide what percentage of your income you’ll save. Automate it if you can.
3. Pick a provider: Compare Allan Gray, Coronation, Satrix, and EasyEquities. Look at fees, performance, and ease of use.
4. Open an account: Most providers let you start online. You’ll need your ID, proof of address, and bank details.
5. Contribute regularly: Set up a debit order to make saving effortless.
6. Monitor and adjust: Check your statements, review your investment choices, and increase contributions when you can.

Conclusion: Your Clear Next Steps

The Two-Pot System is a game changer for South African workers. It gives you more flexibility without sacrificing your future security. But it’s still up to you to save enough, invest wisely, and avoid common pitfalls.

Here’s what to do right now:

• Find out how much you’ve saved and where it’s invested.
• Decide how much to save each month—aim for at least 15% of your income.
• Choose a retirement product that fits your needs and budget.
• Take advantage of tax deductions by contributing to an RA or your employer’s fund.
• Consider a TFSA for medium-term goals and tax-free growth.
• Review your plan annually and adjust as your life changes.

Retirement might feel far away, but the choices you make today will shape your future. Start small if you need to, but start now. Your future self will thank you.