Two-pot system a year on — the signs are good

IT is a year since the so-called “two-pot” retirement savings system came into effect in South Africa, with the aim of forcing employees to retain a major portion of their retirement savings until they need it most - when they retire.

- MARTIN HESSE

Is it working as expected? There have been teething problems, but it appears that, overall, members' long-term outcomes will be far better than if they continued being able to cash in their retirement savings when they changed jobs. Still not ideal, but much, much better.

To recap. Since September 1 last year, contributions to retirement funds have been channeled into two “pots”: one-third into a savings pot and the other two-thirds into a retirement pot. Savings accumulated before then went into a third pot, the vested pot, which remained subject to the pre-two-pot rules.

The savings pot, which was seeded with up to R30 000 from the vested pot, was available to fund members from September 1, 2024. You can withdraw up to the entire amount in the savings pot once a year, with a minimum withdrawal of R2 000. Because retirement contributions are tax-deductible, you will be taxed heavily on the withdrawal.

The retirement pot, which by now will have accumulated a year's worth of contributions and will continue to grow year by year, is not accessible until you retire at age 55 or later. Not even if you change jobs. If you change jobs, you still have access to the money in your vested pot — again with a heavy tax knock. Young employees who started work in the last year have only savings and retirement pots.

Is it working?