The National Treasury and Parliament have introduced a new retirement system to replace the current Pension and Provident retirement systems.

This is a brief and basic explanation of the new Two-Pot System that will be introduced and implemented in the retirement sector of South Africa in the hope of providing aid and flexibility to members and preparing them for retirement and/or short-term emergencies.

What does the "Two-Pot" Retirement System mean to you?

The so-called "Two-Pot System" is an implementation of a new retirement mechanism from the National Treasury to assist and allow more flexibility for retirement and funding for short-term emergencies. The new legislation of the Two-Pot system entails the proposed splitting of retirement contributions into two money pots – and a further third pot for existing retirement benefits.

The initial timeline for the implementation of the new retirement system was initially tabled for implementation on 01 March 2024; however, it has been delayed by Treasury and Parliament to be finally implemented by 1 September 2024. This was to ensure that the Retirement Funds and their respective administrators could, as far as possible, have a seamless incorporation of the new system.


The first pot is meant for long-term financial security. This is where your monthly and/or lump-sum retirement annuity fund contributions will be divided, the first being the two-thirds of the contributions that will be paid to this pot to ensure preservation until retirement. This is where an annuity will be purchased with the two-thirds.

For example, if a member earns a pensionable salary of R10,000.00 at a contribution rate of 15%, which equates to R1 500.00 per month, R1 000.00 will be paid into the retirement pot, minus administrative fees and insurance premiums. The two-thirds will be invested in this pot to be used to buy an annuity.


The second pot, or savings pot, will receive one-third of the pensionable salary. In this pot you may withdraw money once a year, at most, while working; however, you will only be allowed a minimum of R2 000.00 withdrawal per annum. This pot should be used sparingly, as this pot does form part of your full retirement benefit. If you withdraw all of the funds saved in this pot, you will have no funds to withdraw at the date of retirement. This is due to the retirement pot funds being obligated to purchase an annuity. So, use this as a last resort and consult your financial advisor for other possible saving schemes.

Following on from the previous example, R500.00 (one third of R1 500.00) will be paid into this pot per month, minus administrative fees and insurance premiums. Take note that a minimum of R2,000.00 may be withdrawn per year.


Retirement benefits accumulated before 01 September 2024, will not be affected by the new legislation as they will be preserved in a third pot ("the vested pot") which will be managed under the previous system regulated by the Pensions Funds Act, 24 of 1956. This pot will only be accessed at the date of retirement; however, the new pensionable salary will be applied to the new system in which you will have a retirement pot and savings pot.

A member can elect to transfer 10% up to a maximum of R25,000.00 into the savings pot after the implementation of the Two-Pot System. This will ensure that the savings pot does not start with a zero balance on those rainy days.

The implementation of the new system, if managed in a responsible manner, may allow a new member to accumulate more than double their fund value at retirement as compared to the current system. This is a step in the right direction.

However, if not properly managed, it leaves members with a reduced benefit once their savings pot is accessed and, coupled with the ever-increasing inflation, will far outweigh the object of having funds for their retirement and those 'golden years'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.