The current contribution structure to the Two-Pot Retirement System allows members to have the freedom of partial access to their pension fund money without having to break from employment. While the savings get loaned out, the next day the pension has to remain in place for guaranteed accumulation toward mutual income.
How It Works in Practice
Normally, one third of a new contribution goes to the Savings Pot, and two thirds to the Retirement Pot during implementation. A member can make withdrawals, subject to a discharge rule, from the Savings Pot once in a tax year – for example; a fixed amount with no tax. This facility offers members some level of protection against leakage of some funds while allowing them to secure immediate safety from their savings. The Retirement Pot will remain off-limits until retirement in order to cash an income-producing annuity or similar retirement product.
Why This Will Matter by 2026
In 2026, South Africans will experience the realization of the Two-Pot system with respect to work and retirement fund contributions. New funds would be an advantageous tool offering significant potential for disposal in favor of the Retirement Pot over the long run. New provisions complemented by the legislation will provide for funds that are protected from premature withdrawal, a general practice in the past that resulted in many retired people living too poorly.
Retirement Planning Under the New Two-Pot System
Under the Two-Pot system, retirement planning requires a choice of where and when to access the Savings Pot while making provision for the need to save for the long term. Becoming informed about the tax interpretation and retention stipulations that come into play will help members make an informed choice based on their working lives.