Retirement system South Africa has taken a historic move which is to take effect June 25, 2025. The adoption of this change has seen the introduction of the so-called Two-Pot Retirement System in an official way. This system is said to be a major step in ensuring that the institutional pension system of the country becomes robust, flexible and practical. In this paper, we will come to know about this new system in detail including how this system will work, its effects on the body stuffs, and the matters that are worth consideration.
What is the new rule?
The new pension system is Christened as Two-Pot System. It has a simple goal of ensuring that it managed to save the savings of people, more towards their retirement, yet providing some relief in case of emergency situations.
In this regime, contributions, which employees may make to the pension/provident fund after June 25, 2025, will be split into two branches:
- Retirement Pot: This will hold two-thirds of the total contributions and cannot be withdrawn until the individual retires.
- Savings Pot: This will hold one-third and can be withdrawn once a year, starting September 2025, subject to a minimum limit of R2,000.
For employees whose deposits are from before June 25, they will remain in a separate “Vested Pot” and will continue to be governed by the old rules.
How does the two-pot system work?
In simple terms, the new system is divided as follows:
| Components | Withdrawal conditions | Contribution share | Effective date |
|---|---|---|---|
| Savings pot | Withdrawal once a year (≥ R2,000) | 1/3 of new deposits | From September 2025 |
| Retirement pot | Withdrawal only at retirement | 2/3 of new deposits | From June 25, 2025 |
| Vested pot | Old rules apply | Deposits made before June 25 | Already available |
The purpose of this scheme is to motivate the population to put their money away over a more extended duration, although, at the same, have the accommodation to begin to take some back at many times when there is a requirement, so that they do not lose all their savings.
Impact on employees and employers
All employers, and all administrators of pension funds are now required to modify their systems in order to follow the two separate pots. The new entries will be seen by the employees in their pay slips and fund statements.
Each employee is supposed to make sure that his fund manager is leading this change in the right direction and he is being given clear explanation of the change. In case a person is in doubt as to how this change is likely to impact his future financial planning, he ought to consult a professional financial planner.
Now the special part about this is that special transitional provisions have been arranged for an employee who is over 55 years of age yet he/she is already a member of the fund. Whichever is the choice of such employees, they may continue to stay in the old system or take up in the new one.
Tax and withdrawal rules
Withdrawals made from the savings pot will be taxed like the income of that year. Therefore, before any withdrawal, it is important for a person to understand its tax effect.
As far as retirement and vested pot are concerned, the same tax rules will apply to them which generally apply at the time of retirement. This tax structure has been made with the objective that people do not withdraw money early without need and the government’s revenue stability is also maintained.
Long-term objectives
The central purposes of this proposal on pension reform are that financial security in old age is given to the people, old age poverty is alleviated and transparency and sustainability of the national pension system is amplified.
The two-pot system considers the fact that at one time or another a person can incur unforeseen expenses. Under this kind of situation, one does not have to key out the entire money and upcoming savings will not be affected as well. This is very vital in the event of inflation and economic uncertainty in the nation.
Conclusion
The South African pension system which began its operation on 25 June 2025 is a fresh chapter in South Africa. The two-pot system is not only a pension reform, yet a balanced one, a system in which the future security has been considered along with the current requirements.
Making preparations on this new system now is the joint burden of employees, employers and even financial advisors. This new system can be of assistance at a personal level as well as at national economic stability with proper choice and awareness.
Tip:
In case you are an employee in South Africa and you pay up to your retirement, it is time to call your fund administrator and inquire to understand the implication of this new set-up. Clearly, you may withdraw a portion of the savings pot every year, yet you should spend it prudently so as not to jeopardize your future wellbeing.
FAQs
Q1. What is the “two-pot” retirement system?
It splits retirement contributions into a savings pot (1/3) and a retirement pot (2/3), providing both long-term security and limited short-term access.
Q2. When does the two-pot system start?
It came into effect on June 25, 2025, with savings pot withdrawals allowed from September 2025.
Q3. Can I access funds before retirement?
Yes, you can make one withdrawal per year from the savings pot, with a minimum amount of R2,000.
Q4. Will I pay tax on savings pot withdrawals?
Yes, withdrawals from the savings pot are taxed as income in the year they’re withdrawn.
Q5. Do the new rules apply to my old pension savings?
No, contributions made before June 25 remain in a vested pot and follow the old rules.
