Two-Pot System That Became the Three Component System

Latest Update:  Proposed implementation date 1 September 2024.

The rationale behind the legislation is to empower more South Africans to preserve their retirement savings when changing or leaving a job, while also allowing people to access their savings component if they experience financial hardship.

How will the two-pot retirement system work?

From 1 September 2024 (not legislated yet), your retirement contributions will be divided into three components, namely vested, savings and retirement components.  

What is the ‘vested component’?

These are all the funds that accumulated in your retirement fund up until 31 August 2024. 

• LESS allocation made to savings component
• PLUS all future growth

Old rules apply to this component and no new contributions will be accepted into this component.

Provident fund annuitisation:

On 1 March 2021 Provident funds were aligned with pension and retirement annuity funds restricting access at retirement to one third of the retirement benefit.

If you have a provident fund and you were over 55 years old on 1 March 2021 you can continue with the old system or adopt the new one (see does age matter?)

What is the ‘savings component’?

From 1 September 2024, one-third of your contributions will go to your savings component and are accessible before retirement.

To provide initial seed capital for your savings component, 10% of your fund balance (capped at R30,000) will be transferred from your vested component. For example, if your fund has R30,000 in it, R3,000 will be transferred to your savings component.

What is the ‘retirement component’?

• The remaining two-thirds from 1 September 2024 contributions will go into a retirement component, which you cannot access until retirement.  For example, if you contribute R3,000, R2,000 will go to your retirement component, and R1,000 will go to your savings component.

• Note: The above applies to future contributions and excludes all contributions you have made up until 31 August 2024.

Can I access any of my funds in the savings component from 1 September 2024?

Yes, you can, however, there are limits in terms of the amount and the number of times you can withdraw.

You can make one withdrawal per tax year.  The minimum is R2000 (gross amount before taking costs into account).  The maximum is 100% of the value of the savings component.   

What happens if I am retrenched; what funds will I be able to access?

Pension funds and provident funds: if you are retrenched you will be able to access all the funds in your vested component as well as your accumulated savings in the savings component.

Retirement annuities: you will only be able to access your savings component.

How will the tax on a withdrawal from the savings component work?

• All withdrawals from the savings component are added to your taxable income and will be taxed at your marginal tax rate.

For example, if your annual income is R300,000, your marginal tax rate according to the 2023/24 income tax table will be 26%. This means that if you withdraw R10,000 from your savings component, R2,600 will be deducted from this amount and paid to SARS.

Does my age matter?

Yes, it can matter for provident fund members. On 1 September 2024, provident fund members who were 55 years or older on 1 March 2021, can either:

• Contribute to the vested component (until you retire or leave the fund); OR
• Participate in the two-pot retirement system and split all new contributions between savings and retirement components. Then you will no longer be able to contribute to the vested component.

What happens on death?

When a member dies the death benefit will comprise of the vested, savings and retirement benefit.

Source: Sanlam, Old Mutual, Momentum