What is the Two‑Pot Retirement System?

The Two‑Pot Retirement System (also referred to simply as the Two‑Pot System) launched in South Africa on 1 September 2024, following the Revenue Laws Amendment Bill signed by President Ramaphosa. Under this system, retirement funds are split into two main parts:

• Savings Pot: One‑third of new contributions plus a one‑time “seed capital” transfer (10% of pre‑1 Sept 2024 vested value, capped at R30 000) goes into this pot for early access.
• Retirement Pot: The remaining two‑thirds stays locked up until retirement, aimed at providing long‑term income security South African Revenue Service

The existing balance as of 31 August 2024 is called the Vested Pot, which stays under the old rules, with only the capped seed capital moving into the Savings Pot.

How the Two‑Pot Retirement System Works in Practice

Access Rules

• You can withdraw once per tax year, between 1 March and the following 28/29 February.
• Minimum withdrawal amount: R2 000; no hard maximum—limited by your Savings Pot balance.
• The Retirement Pot isn’t accessible until retirement (usually age 55 or under special circumstances).

Who Can Participate?

• Mandatory adoption applies to provident, pension, and retirement annuity fund members contributing from 1 September 2024.
• Members in provident funds who were aged 55 or older by 1 March 2021 are excluded unless they opt in by 31 August 2025.

Tax on Pension Pot Withdrawals

Tax on the Savings for the Two‑Pot Retirement System

Withdrawals from your Savings Pot are treated as normal taxable income and taxed at your marginal income tax rate using PAYE guidance. Contributions themselves are not taxed, but any withdrawal is.

That means the withdrawal amount is added to your yearly income, which could push you into a higher tax bracket—impacting your taxable income and possibly increasing your overall tax liability.

What About Tax Compliance on the Two‑Pot Retirement System?

You must be registered with SARS and GEPF to withdraw from the Two‑Pot Retirement System, have a valid SARS tax number, and be fully tax‑compliant. If you owe SARS (such as unpaid tax returns or assessed debt), those amounts are deducted from your withdrawal amount before payment.

A tax directive must be issued by SARS to your fund administrator to instruct how much tax to withhold. This usually happens within about 48 hours if you’re fully compliant.

You can estimate how much you’ll receive using SARS’s Savings Withdrawal Benefit calculator—available via eFiling, MobiApp, WhatsApp, or the SARS website.

Calculating Your Tax & Returns

Here’s how tax on Savings Withdrawal Benefits fits into your wider tax season, tax returns, and reporting:

• SARS uses special codes to report these withdrawals in PAYE (e.g. code 3926 for withdrawal, 4102 for tax directive).
• Tax is calculated using normal progressive income tax rates. For example, anything up to R25 000 is tax‑free, then 18% up to higher brackets, etc.—the same tables used in annual tax season filings.
• If your withdrawal plus regular income pushes you above thresholds, you may pay more tax—or receive a refund during assessment if too much was withheld.

SARS recommends filing all outstanding tax returns before making a withdrawal to avoid directive rejection or deductions due to non‑compliance.

Why It Matters: Balancing Flexibility and Long‑Term Saving

The Two‑Pot System gives flexibility for short‑term needs while preserving the bulk of retirement savings. During the first weeks of operation, South Africans withdrew an estimated R4.1 billion in just 10 days, and over R21 billion in six weeks—showing strong demand for early access in times of need.

That said, each withdrawal:

• Reduces future compound growth potential,
• May increase your tax rate for the year,
• Requires you to be tax‑compliant with SARS.

Quick Financial and Tax Tips for Navigating the Two‑Pot System

Whether you’re considering a withdrawal or planning for long‑term retirement, here are essential financial and tax-related pointers to keep in mind:

• Check Your Tax Compliance First
  Before initiating any withdrawal, make sure all your tax returns are up to date and you have no outstanding SARS debt. Incomplete tax affairs can delay your payout or reduce your final withdrawal amount.
• Understand Your Tax Bracket
  Withdrawals from the Savings Pot are added to your annual taxable income and taxed at your marginal rate. This means a withdrawal could push you into a higher tax bracket, especially if your total income is close to the next threshold.
• Use SARS’s Online Tools
  SARS offers a Savings Withdrawal Benefit calculator through eFiling, the SARS MobiApp, and even WhatsApp. This tool gives an estimate of your net payout after tax and helps with planning.
• Plan Your Timing Carefully
  Since you can only make one withdrawal per tax year, it’s crucial to time it well. Consider your expected income for the year, other tax liabilities, and whether deferring the withdrawal to a future year might reduce your tax burden.
• Know What SARS Will Deduct
  If you owe SARS for things like unpaid assessments or penalties, they can deduct that amount directly from your withdrawal. The tax directive issued will reflect this adjustment.
• Keep Tax Season in Mind
  All withdrawals made from the Savings Pot are reported to SARS and may affect your annual tax return. Ensure that your withdrawal is correctly reflected when you file your return to avoid discrepancies or delays in assessments.
• Retirement Pot Remains Untouched
  Remember, the Retirement Pot is preserved until retirement (usually age 55 or older). It’s not available for early withdrawals and isn’t taxed until accessed during retirement, where different tax tables may apply.
• Document Everything
  Keep copies of all SARS correspondence, withdrawal approvals, and tax directives. This helps if you need to query anything during filing season or if your final tax assessment includes unexpected items.

In Summary

The Two‑Pot Retirement System (or savings and retirement pot model) is reshaping access to retirement funds in South Africa. It gives flexibility through the Savings Pot, balanced by preservation in the Retirement Pot. But access comes with tax implications, and proper SARS registration, compliance, and calculation are key.

By understanding tax on pension pot, using SARS digital tools, and aligning withdrawals with tax season, individuals can make smart, practical decisions without compromising retirement goals.

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References

https://www.sars.gov.za/two-pot-retirement-system/
https://www.sars.gov.za/latest-news/updated-specification-for-the-two-pot-retirement-system-2/
https://businesstech.co.za/news/finance/789439/how-much-youll-get-when-withdrawing-from-the-new-two-pot-retirement-system-after-tax/