The Two-Pot Retirement System: What Changed and Whether to Withdraw

Retirement savings used to be locked until retirement, except on leaving a fund. The two-pot retirement system changed that by letting members access a small part earlier.

That is useful in a real emergency, and expensive if you treat it as spending money.

What are the three components of two-pot retirement?

A once-off seed amount from the vested component, generally 10% of the fund value on 31 August 2024 and capped at R30,000, gave the savings component a starting balance.

How do two-pot retirement savings withdrawals work?

• The minimum withdrawal is R2,000.
• You must be registered for tax, because your fund asks SARS for a tax directive.
• The withdrawal is added to your income and taxed at your marginal rate.
• Your fund may charge administration fees.
• Funds can limit how often you withdraw. Check your fund’s rules.
• The money you take stops growing for retirement.

See SARS’s page on the two-pot retirement system for the rules on tax registration and directives.

What does a R10,000 withdrawal really pay?

Here is a hypothetical example. Your marginal rate depends on your total income, so the same withdrawal leaves you with different amounts.

Fees may take more. The retirement benefit you give up is bigger than what you receive, because the money would have grown for years.

When might it make sense?

Only in a real emergency, where cheaper options have failed. Compare with other options first: a payment plan, an emergency fund, family help or a stokvel. See emergency loans.

What about debt?

Using retirement savings to pay a debt may make sense if the debt is very costly. The tax and lost growth matter, though.

Check what your employer owes you first, such as notice pay and leave pay, because that can bridge a gap without touching your retirement savings.

A R5,000 short-term loan can cost about R969 for a month at the legal maximums, which is why people reach for the savings pot. Get advice first. See what to do when you cannot pay your debts.

What should you do instead of a two-pot retirement withdrawal?

• Build an emergency fund. See emergency fund.
• Check your fund’s rules and fees.
• Use a payment arrangement for debts.
• Talk to an FSCA-authorised adviser before withdrawing.

What if you are retrenched?

Be careful. See retrenchment for your rights and money steps, including what you may be owed before you touch retirement savings.

What does a two-pot retirement withdrawal cost you later?

The cost of a withdrawal is not only the tax. It is also the growth you give up. Here is a hypothetical example. You take R10,000 from the savings component and the money would otherwise have grown at an assumed 7% a year until age 65.

At 30, taking R10,000 may cost you more than R100,000 at retirement, while you receive only about R6,900 to R8,200 after tax. The numbers are illustrations, because real returns vary. The pattern holds: the younger you are, the more a withdrawal costs.

Two-pot retirement savings are most valuable when left alone.

How do you check your balances before deciding?

Do not guess how much is in each pot. Ask your fund for a benefit statement that shows:

• The balance in the savings, retirement and vested components.
• The date of the last contribution and the growth credited.
• The fees charged, and what a withdrawal would cost.
• Any rules on how often you may withdraw.

If you belong to an employer’s fund, HR or the fund administrator can send it. If you have a retirement annuity, the provider can. A few minutes with a statement turns a vague idea of a “pot” into real numbers you can plan around.

What should you ask before you make a two-pot retirement withdrawal?

Work through these questions, and write down the answers:

1. Am I registered for tax with SARS, and is my tax number on the fund’s system?
2. How much will I actually receive after tax and fees?
3. Have I tried every cheaper option, such as a payment plan or help from family?
4. Will this solve the problem for good, or only for one month?
5. What will I do to replace the savings?
6. Have I spoken to an FSCA-authorised adviser or my fund?

If the answers to questions 3 or 4 are no, wait. A withdrawal is permanent in the sense that the growth you lose does not come back.

What order should you follow if you lose your job?

A job loss is one of the times people consider two-pot retirement savings. A sensible order protects the savings for as long as possible.

Each step costs less than a withdrawal, so it comes first. If you reach step 5, withdraw only what you need, not the maximum.

What mistakes do people make with two-pot retirement savings?

• Withdrawing for a holiday or a purchase that could wait.
• Withdrawing repeatedly in small amounts, which brings repeated tax and fees.
• Withdrawing, then borrowing again soon after because the budget did not change.
• Forgetting that the withdrawal is added to income and may push you into a higher tax bracket for the year.

A short chat with an adviser before you withdraw is cheap compared with the cost of a mistake.

What should you do after a two-pot retirement withdrawal?

If you do withdraw, protect the rest. Keep paying into the fund, so the retirement component keeps growing. Check your next payslip for the tax, and keep the directive.

Then set a small monthly amount aside, outside the fund, so that the next emergency has a first line of defence that does not touch two-pot retirement savings.

Frequently asked questions