What is the Two-Pot Retirement System?

1. What is the Two-Pot Retirement System?

The Two-Pot Retirement System is a new structure for managing retirement savings in South Africa, effective from 1 September 2024. It divides your retirement savings into three distinct parts: the Savings Pot, the Retirement Pot, and the Vested Pot, each with specific rules for contributions and access.

2. Why was the Two-Pot Retirement System introduced?

The system was introduced to provide a balance between accessibility and the preservation of retirement savings. It aims to reduce premature withdrawals and the associated penalties, ensuring that individuals have funds available for emergencies while preserving the majority of their savings for retirement.

3. What is the Savings Pot?
The Savings Pot provides immediate access to funds for emergencies and short-term needs:

Initial Allocation: 10% of your existing retirement savings (capped at R30,000) will be transferred to this pot on 1 September 2024.
Ongoing Contributions: One-third of your monthly retirement contributions from the 1^st of September 2024 will go into this pot.
Accessibility: You can withdraw from this pot once every tax year before retirement (minimum withdrawal of R2000), subject to certain conditions and taxed at your marginal tax rate.
*Your own tax liability will influence the calculation. EasyEquities will act on the directive from SARS for the total tax amount to withhold as part of your savings pot withdrawal.
Find out how to request a withdrawal here.

4. What happens to my Savings Pot when I retire?

When you retire, the funds in your Savings Pot will be included in the lump sum retirement benefit calculation. You can access these funds at retirement, and they will be taxed according to the retirement fund benefits lump sum tax tables applicable at the time of retirement.

5. What is the Retirement Pot?
The Retirement Pot secures long-term savings for your retirement years:

Initial Allocation: Starts with a zero balance but grows as you contribute.
Ongoing Contributions: Two-thirds of your monthly retirement contributions from the 1^st of September 2024 will go into this pot.
Accessibility: Funds in this pot are locked in until retirement (i.e. you cannot withdraw from this pot until you retire), ensuring long-term financial stability. This pot is taxed according to existing retirement fund rules upon retirement.

6. What happens to my Retirement Pot when I retire?

When you retire, the funds in your Retirement Pot will be used to provide a regular income during your retirement years. These funds are typically converted into an annuity, which provides a steady stream of income. The exact amount and frequency of the income will depend on the type of annuity you choose and the total amount in your Retirement Pot. These funds are taxed according to the existing retirement fund rules applicable at the time of retirement.

5. What is the Vested Pot?
The Vested Pot contains all accumulated savings before 1 September 2024:

Accessibility: Subject to existing withdrawal rules that were in place before the new system.
Protection: These savings are protected and integrated into the new structure without changing the rules.

6. What happens to my Vested Pot when I retire?

When you retire, the funds in your Vested Pot are accessible according to the existing rules that applied before the introduction of the 2-Pot system. You can take up to one-third as a lump sum cash payout, with the remaining two-thirds needing to be annuitised. The tax treatment of these funds will follow the rules that were in place prior to 1 September 2024, ensuring continuity and protection of your pre-existing savings.

7. How will my current retirement savings be allocated under the new system?
Let’s use an example to illustrate how this will work.

If your Retirement Annuity (RA) is valued at R600,000 on 31 August 2024:

Savings Pot: R30,000 (up to 10% of your RA value, capped at R30,000).
Retirement Pot: R0 initially, but it will grow with your contributions.
Vested Pot: R570,000 (the remaining balance of your RA).

7. How will my monthly contributions be allocated after 1 September 2024?
Let’s say you contribute R3,000 monthly to your RA:

Savings Pot Contribution: R1,000 (one-third of R3,000).
Retirement Pot Contribution: R2,000 (two-thirds of R3,000).

8. Savings Pot? Vested Pot? Retirement Pot? This sounds like a lot of admin! Won’t managing my investments across pots become confusing?

The good news is that the way you fund and manage your EasyRA portfolio on EasyEquities won’t change! Deposit and invest as you normally would, and we’ll crunch the numbers in the back end and apportion your funds accordingly amongst the pots.

9. How much tax will I pay on my savings pot withdrawal?

You will be taxed at your own marginal tax rate. Your own tax liability will affect the calculation, but it is important to note that these withdrawals count as income. Depending on your situation, the withdrawal could push you into a higher tax bracket, potentially resulting in greater-than-expected deductions. Consider discussing this with a registered tax practitioner beforehand to avoid any unexpected surprises.

* EasyEquities will act on the directive from SARS for the total tax amount to withhold as part of your savings pot withdrawal. As per the directive we receive from SARS, if you have any outstanding tax obligations, this will first be deducted from your savings pot withdrawal and paid across to SARS on your behalf.

10. What happens if I leave my employer under the new system?
When you leave your employer:

Savings Pot: You can access these funds, subject to certain conditions and tax deductions.
Retirement Pot: Funds remain inaccessible and preserved for retirement (i.e. you cannot withdraw from this pot), but can be transferred to a new retirement annuity or pension fund provider. (See below for more information on how to transfer to EasyEquities)
Vested Pot: Funds can be transferred to a new retirement fund, following existing rules.

11. Are there any exemptions from the new 2-Pot Retirement System rules?
Yes, certain individuals and retirement products are exempt:

Already Retired Individuals: Those retired as of 1 September 2024 will follow the old system's rules.
Provident Fund Members as of 1 March 2021 who were over the age of 55 at the time, and are still part of the fund on 1 September 2024: You can continue under the old rules or choose to opt-in to the new system.

12. Can I transfer my RA or Living Annuity to EasyEquities? Do you charge a fee?

While your current provider may levy fees for the transfer, EasyEquities does not charge you to transfer your current portfolio to an EasyRA wallet.

Transferring to EasyEquities is a simple process involving a few easy steps:

Activate your EasyRA wallet. You can do this by navigating to your profile menu on the top right of your screen or app and selecting "Account Management" and selecting "Activate New Accounts".
Accept the T&Cs.
Fill out our online form to let us know a bit more about your transfer. Be sure to have a copy of your ID document (front and back), your policy number with your current provider, and proof of tax number – have any SARS document displaying your name and tax reference number handy as we may need this from you during the process.

If you have a Living Annuity you’d like to transfer to EasyEquities, check out this detailed FAQ that outlines the process.

If you would like to withdraw funds from your savings pot, have a look at this FAQ.