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Busting the myths: Your guide to a smooth two-pot retirement

By: Natasha Archary

Plant growing in savings coins with nature background. Saving money and investment concept.

As South Africa eagerly anticipates the launch of the Two-Pot Retirement System on 1 September 2024, there’s a pressing need to dispel the myths surrounding the new approach to retirement planning.

Only 6% of the country’s population is on track to retire comfortably, according to the sixth edition of the 10X Investments Retirement Reality Report 2023.

Thabo Hollo, Old Mutual Education Manager joins Gugulethu Mfuphi on Kaya Biz to debunk the common myths and empower retirement fund members with the knowledge needed to navigate this new system confidently.

Here are some of the myths:

Myth: The Two-Pot Retirement System applies to everyone saving for retirement in South Africa.

This statement isn’t entirely accurate. The Two-Pot System applies to most retirement funds, but there are some exceptions:

  • Provident fund members over 55: If you’re a member of a provident fund and over the age of 55 at 1 March 2021 and still a member of that same fund you’ll have the option to choose to remain under the old system or opt into the new Two-Pot System from 1 September 2024.
  • Pensioners, unclaimed benefits, closed funds and funds in liquidation: These categories are exempt from the Two-Pot System. Pensioners already receive their retirement benefits, closed funds are no longer accepting new members, and funds in liquidation are undergoing a wind-down process.
  • Legacy Retirement Annuity Funds:  Certain types of older Retirement fund annuity constructs have the ability to apply for exemption from the Two Pot system.

Myth: All my retirement savings are up for grabs

Think again! The Two-Pot System keeps your retirement nest egg safe.

  • You’ll only have access to the money in the “Savings Pot,” designed for emergencies. To start you off, 10% of your existing savings (capped at R30 000) will automatically be transferred to this Savings Pot as a once-off deal! Going forward, one-third of your future contributions will fill this emergency pot, ensuring you have some breathing room while the rest of your two thirds contribution towards your retirement pot grows untouched for your golden years.

Myth: I won’t pay tax on withdrawals from my savings component

Wrong, Two-Pot withdrawals are taxed as income:

  • Under the Two-Pot system, withdrawals from the Savings Pot before retirement will be taxed at marginal rates, like other forms of income. A marginal tax rate is the amount of tax you pay on an additional unit of income. For example, if you earn more money and enter a higher income bracket, the new income will be taxed at a higher rate. Think of it as climbing a set of stairs, as you earn more, you move up to the next step and the money you earn on that step is taxed at a higher percentage but the income you earned on the lower steps remain taxed at lower rates.
  • It is important to understand how withdrawals have a tax impact, on both the withdrawn amount and on the remaining funds.
  • Only one withdrawal per tax year is allowed (minimum R2 000).

Myth: Only employee contributions go into the Savings Pot:

The Two-Pot Retirement reforms will apply to all contributions to your fund, after payment of costs, so it will apply to both employee and employer contributions.

Myth: The Two-Pot Retirement System completely restricts access to your retirement savings.

This is a common misconception. The Two-Pot System actually addresses two key issues:

  • Early withdrawals: Cashing out your pension savings when you change jobs can significantly hurt your retirement security in the long run. The Two-Pot System discourages this by limiting access to most retirement funds when you change jobs, promoting long-term savings habits.
  • Lack of emergency funds: The National Treasury in partnership with all key stakeholders designed the Two-Pot System to allow early access to a portion of your retirement savings for emergencies. This provides financial security in unexpected situations, while still encouraging you to preserve the majority of your savings for a comfortable retirement.

Navigating the complexities of the Two-Pot Retirement System may seem daunting, but fear not says John. “Our financial education facilitators across all provinces offer free workshops to employers and trade unions for a comprehensive knowledge to seamlessly guide you through this transition.  You can also speak to your financial advisor for more clarity. Together, let’s embrace the future of retirement planning with clarity and confidence.”

It is really important to keep reading your member communications sent through to see if any of these categories apply to you.

Listen to the conversation on Kaya Biz:

Also read: Nurse accused of murdering her domestic worker for life insurance

Written by: Natasha


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