What is the two-pot system?
The two-pot retirement system, in force since 1 September 2024, lets members of South African pension, provident, preservation and retirement annuity funds take part of their retirement savings as cash while still in the fund. They no longer need to resign to reach those savings, and most of each contribution stays locked in until retirement.
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- Vested component: the value of the member’s interest at 31 August 2024, less the seed capital. It keeps the old rules, including access to a lump sum when the member leaves a fund.
- Savings component: one-third of contributions from 1 September 2024, plus one-off seed capital of 10% of the vested component, capped at R30,000.
- Retirement component: two-thirds of contributions. It pays a pension or buys an annuity at retirement and, if the member resigns or is dismissed or retrenched, must be transferred to another fund rather than paid out.
Savings withdrawals and tax
A member can withdraw at least R2,000 from the savings component, once in each tax year. The withdrawal is taxed at the member’s marginal rate, with no retirement rates, exemptions or tax-free amounts. The member applies to the fund, not the employer. The fund then asks SARS for a tax directive, which sets the tax to deduct. The member needs a tax reference number and no outstanding returns, and SARS can have any tax debt deducted from the payout. Once the application reaches SARS, it cannot be cancelled. Any under- or over-deduction is settled when the member is assessed.
What employers should know
The employer keeps deducting and paying over contributions as before, and the fund splits them between the components. The employer does not process savings withdrawals, but employees may ask about them, and because a withdrawal is added to their income for the year, it can change their final tax bill. Contributions paid by the employer are a taxable fringe benefit, treated as paid by the employee when the deduction is worked out.
Retirement funds when TopSource runs your payroll
When TopSource runs your payroll in South Africa, we deduct and report retirement fund contributions each month, include employer contributions as a fringe benefit and show the amounts on the IRP5.
Frequently asked questions
How much can be withdrawn under the two-pot system?
At least R2,000, up to the full savings component, once in each tax year.
How are two-pot withdrawals taxed?
At the member’s marginal income tax rate, based on a tax directive that the fund obtains from SARS.
Do employers handle two-pot withdrawals?
No. The member applies to the retirement fund, and the fund deals with SARS and pays the withdrawal.
Related terms in South Africa
- Temporary Employment Services (South Africa)
- Section 198B Fixed-Term Rule (South Africa)
- BCEA Earnings Threshold (South Africa)
- Retrenchment (South Africa)
- Restraint of Trade (South Africa)
- Family Responsibility Leave (South Africa)
- Sick Leave Cycle (South Africa)
- Employment Equity Act Reporting (South Africa)
- B-BBEE Scorecard (South Africa)
- Critical Skills Work Visa (South Africa)
- POPIA and Employee Data (South Africa)
- EMP201 Monthly Return (South Africa)
- EMP501 Reconciliation (South Africa)
- IRP5 and IT3(a) Certificates (South Africa)
- Tax Directive (South Africa)
- Fringe Benefits Tax (South Africa)
- Travel Allowance (South Africa)
- Employment Tax Incentive (South Africa)
- Medical Scheme Fees Tax Credit (South Africa)