The Two-Pot Retirement System — What It Is and What It Costs in Tax

The two-pot retirement system came into effect on 1 September 2024 and immediately became one of the most-discussed changes to personal finance in South Africa in years. Millions of retirement fund members now have access to a portion of their retirement savings before they retire — something not possible under the old rules.

But the access comes with conditions, and the tax consequences are more significant than many people realise when they apply for their first withdrawal.

What the Two-Pot System Actually Does

Before September 2024, retirement fund members could not access any savings while still employed, except by resigning or being retrenched. The two-pot system changes this by splitting future contributions — not past savings — into two separate components:

• The savings component receives one-third of your ongoing contributions from 1 September 2024. You can make one withdrawal per tax year (March to February), with a minimum of R2,000 per withdrawal.
• The retirement component receives two-thirds of your ongoing contributions. This is fully preserved until retirement — it cannot be accessed before you retire, resign, or meet another preservation trigger.
• The vested component holds everything in your fund before 1 September 2024. It continues under the old rules.

At inception, each fund allocated a once-off seed amount of 10% of your pre-September 2024 balance (capped at R30,000) from the vested component into your savings component. This gave members an initial accessible balance from day one.

The Tax Treatment of Savings Component Withdrawals

A withdrawal from the savings component is taxed as ordinary income in the year of withdrawal, at your marginal rate of tax. It is not subject to the retirement lump sum withdrawal table. It is treated identically to salary income.

Let’s make this concrete. Suppose you earn a gross salary of R500,000 per year. At that income level, your marginal rate for the 2025/26 tax year is 31%. You make a R30,000 withdrawal from your savings component. That R30,000 is added to your income, increasing your taxable income to R530,000. The marginal portion is taxed at 31%, meaning the R30,000 costs you approximately R9,300 in additional income tax. You receive R20,700 after tax.

For a higher earner at a 41% marginal rate, the same R30,000 withdrawal costs R12,300 in tax — you receive R17,700.

The Interaction with Provisional Tax

If your savings pot withdrawal creates or increases income not subject to PAYE, it may create a provisional tax obligation. Fund administrators are required to withhold PAYE on savings component withdrawals based on SARS tax directives. If your income differs significantly from what SARS anticipated, the withholding may be insufficient and you’ll owe the balance when you file your ITR12. For provisional taxpayers — the self-employed and business owners — a savings component withdrawal simply adds to your taxable income in your provisional estimates.

When Does It Make Sense to Withdraw?

• You’re in a temporary financial emergency with no better-priced debt option available. Credit card debt at 22% is more expensive than compound growth at 8–10%, even after the tax on the withdrawal.
• You’re in a low-income year — on extended unpaid leave, recently retrenched, or in the early years of a business — and your marginal rate is meaningfully lower than it will be at retirement.
• The money will be deployed into something that generates a return higher than the net-of-tax cost of the withdrawal. This is a high bar for most people.

When It Almost Certainly Doesn’t Make Sense

Withdrawing to fund lifestyle expenses — a holiday, a renovation, a car upgrade — permanently reduces your retirement savings with no compensating financial benefit. Retirement savings compound over decades. The rand you withdraw at 35 is worth far more at 65 than it is today. Withdrawing because “I might as well, since I can” is not a financial strategy.

A Note on the Evolving Rules

The two-pot system is new, and some of the finer details are still being worked through by fund administrators and SARS. If you are considering a withdrawal, verify the current rules with your fund administrator directly, and consult a tax practitioner if your income situation is complex. If a savings component withdrawal affects your provisional tax or ITR12 in ways you’re unsure about, our tax compliance team can help.