If you have a pension fund, provident fund, or retirement annuity in South Africa, your retirement savings changed fundamentally on 1 September 2024. The two-pot retirement system is the biggest reform to South Africa’s retirement landscape in decades and while it was designed to help ordinary South Africans, it also comes with real risks that most people don’t fully understand before making decisions.
This guide breaks down exactly how the system works, what your options are, what you will pay in tax if you withdraw, and, most importantly, when it actually makes sense to access your savings pot and when it doesn’t.
What Is the Two-Pot Retirement System?
Before September 2024, South Africa’s retirement fund system had a significant flaw: when you resigned or changed jobs, you could cash out your entire retirement fund. Most people did. According to National Treasury estimates, less than 6% of South Africans retire comfortably, and early cash-outs are one of the primary reasons.
The two-pot system was introduced to fix this. From 1 September 2024, all new contributions to your retirement fund are split into two separate pots:
The Savings Pot (one third of contributions)
One third of every rand you contribute goes into your savings pot. This money is accessible, you can withdraw from it once per tax year if you genuinely need it. The minimum withdrawal is R2,000 and you can withdraw up to the full value available in your savings pot at the time of application.
The Retirement Pot (two thirds of contributions)
Two thirds of every contribution goes into your retirement pot. This money is locked until you retire. At retirement, the full retirement pot must be used to purchase an annuity income, you cannot take it as a cash lump sum.
The Vested Pot (your savings before 1 September 2024)
All the money you had saved before 1 September 2024 sits in a vested pot. The old rules still apply to this money i.e. it remains accessible when you change jobs or retire, just as it was before.
The key change: from 1 September 2024, you can no longer cash out your full retirement fund when you change jobs. Only the vested pot retains that option. New contributions are split between the savings and retirement pots under the new rules.
The Seed Capital: Your Starting Point
When the system launched on 1 September 2024, most retirement fund members received a once-off “seed capital” amount in their savings pot. This was calculated as 10% of your total retirement fund value as at 31 August 2024, capped at R30,000.
So if your retirement fund was worth R300,000 on 31 August 2024, you received R30,000 in seed capital. If your fund was worth R100,000, you received R10,000.
This seed capital is what many South Africans withdrew in the weeks after the system launched. By the end of October 2024, over 1.2 million withdrawal applications had been submitted to SARS, with approximately R22 billion withdrawn in the first two months alone.
How Is a Savings Pot Withdrawal Taxed?
This is the part most South Africans don’t fully understand before they apply to withdraw, and it matters enormously.
Withdrawals from your savings pot are taxed at your marginal income tax rate. Not the favourable retirement lump sum tax rates you get when you retire. Your ordinary income tax rate, applied to the full withdrawal amount.
[TABLE HERE]
These are approximate figures for illustration. Your actual tax will depend on your total taxable income for the year. Note also that:
- SARS will deduct any tax debt you owe (IT88 orders) directly from your withdrawal before you receive it
- Your fund administrator will charge an administration fee on each withdrawal
- You must be registered for tax with SARS to make a withdrawal - unregistered individuals will have their directive applications rejected
A practical example: if you are a middle-income earner on a 36% marginal rate and you withdraw R30,000, you could receive as little as R19,200 after tax and fees. The R10,800 difference is permanently gone from your retirement savings.
What Has South Africa Actually Been Doing With Their Savings Pots?
Research since the system launched tells a sobering story. A survey by Discovery found that the most common uses of savings pot withdrawals were:
- Paying off debt
- Paying school fees and education costs
- Car or home financing repayments
- Day-to-day living expenses
While these are all real financial pressures, they also confirm what financial advisers have long warned: most South Africans are using their retirement savings to plug short-term holes rather than as a genuine emergency fund of last resort. The long-term cost of that decision compounds significantly over time.
When Does It Actually Make Sense to Withdraw?
Here is an honest framework for thinking about whether to access your savings pot:
It may make sense if:
- You are facing a genuine financial emergency with no other options like medical crisis, preventing eviction, keeping your business from closing
- The cost of not withdrawing (for example, defaulting on a loan at a high interest rate) is demonstrably higher than the tax you will pay on the withdrawal
- You have carefully calculated the net amount you will receive after tax and fees, and it genuinely solves the problem
It probably does not make sense if:
- You want to use it for a lifestyle purchase, holiday, or non-essential expense
- You are using it to cover recurring monthly shortfalls. This masks a budgeting problem rather than solving it
- You haven’t calculated the tax impact and are assuming you will receive the full amount
- You are in a high tax bracket where the net payout is significantly reduced
- You are close to retirement. The compound growth lost in your final years has a disproportionate impact
[CLIENT INPUT NEEDED — Personal expertise: In your experience advising clients, what are the most common mistakes you’ve seen people make with their savings pot since September 2024? For example: “We’ve had clients come to us after withdrawing, only to realise the tax took far more than they expected” or “The most common reason clients give us for withdrawing is X, but the smarter solution is usually Y.” Please add 2–3 sentences of your own experience here.]
The Long-Term Cost: What You’re Actually Giving Up
The most important thing to understand about withdrawing from your savings pot is not the tax you pay today, it is the compound growth you permanently lose.
Consider a 35-year-old who withdraws R30,000 from their savings pot today. Assuming a 10% annual return and 30 years to retirement, that R30,000 would have grown to approximately R523,000 by age 65. The cost of the withdrawal is not R30,000. It is R523,000 in future retirement income.
That is not an argument never to withdraw. It is an argument to understand exactly what you are trading away before you make the decision.
What Happens to Your Savings Pot When You Change Jobs?
This is one of the most important changes the two-pot system introduced. Under the old rules, you could cash out your entire fund when you resigned. Under the new rules:
- Your vested pot retains the old rules meaning you can still access it when you change jobs, subject to tax
- Your savings pot can still be accessed once per tax year regardless of employment status i.e. you don’t need to resign to access it
- Your retirement pot cannot be accessed when you change jobs. It must stay invested and be preserved for retirement
The practical effect is that the two-pot system significantly reduces, but does not eliminate, the ability to cash out retirement savings when changing jobs. Over time, as the vested pot diminishes and new contributions grow, the retirement pot becomes the dominant portion of most people’s retirement savings, permanently protected from early access.
What About Retirement Annuities (RAs)?
Yes, the two-pot system applies to retirement annuities as well as pension and provident funds. From 1 September 2024, one third of your RA contributions go into your savings pot and two thirds go into your retirement pot.
RAs were previously completely locked in until age 55 with very limited exceptions. The two-pot system gives RA members a new layer of flexibility - access to the savings pot once per year. However, the retirement pot remains locked until age 55, and the fundamental purpose of the RA as a long-term retirement savings vehicle has not changed.
If you have an RA and are considering a savings pot withdrawal, speak to your financial adviser first. The tax implications are the same as for any other retirement fund, and the long-term cost is equally significant.
[CLIENT INPUT NEEDED — Personal expertise: What is your recommendation to clients who come to you asking whether they should access their savings pot? What questions do you ask them first? This is a great place to show Ambiton’s advisory approach — e.g. “The first thing we ask is: what is the alternative? Because in most cases, there is one.”]
How Do I Make a Withdrawal From My Savings Pot?
If you have decided to proceed, here is the process:
- Confirm you are registered for tax with SARS. If not, register via SARS eFiling (www.sarsefiling.co.za) or the SARS MobiApp before applying.
- Contact your retirement fund administrator (your employer’s HR department for a pension or provident fund, or your RA provider directly).
- Submit a withdrawal application. Your fund administrator will request a tax directive from SARS on your behalf.
- SARS will calculate the tax payable and issue a directive. If you owe SARS any money, it will be deducted from your withdrawal at this point.
- Your fund administrator processes the payment and deducts their administration fee.
- The net amount is paid into your bank account.
The process typically takes a few weeks from application to payment, depending on your fund administrator and the volume of applications being processed.
Getting the Most Out of the New System
The two-pot system is not inherently good or bad for South Africans, it depends entirely on how you use it. Used wisely, the savings pot is a genuine financial safety net that can prevent people from making catastrophic decisions (like cashing out their entire fund) when they hit a rough patch. Used carelessly, it is a way to slowly erode your retirement savings one tax-inefficient withdrawal at a time.
The most important thing you can do is get proper financial advice before making any decision. A qualified financial adviser can model the real cost of a withdrawal in your specific circumstances, explore alternatives you may not have considered, and help you make a decision you will not regret in 30 years.
The two-pot system gives South Africans more flexibility with their retirement savings. But flexibility without guidance is just another way to make an expensive mistake faster.
Speak to an Ambiton Adviser About Your Retirement Strategy
Whether you are trying to understand your savings pot options, reviewing your retirement annuity, or planning for a retirement that actually works on your terms, the team at Ambiton Financial Services can help.
We are independent financial advisers with over 25 years of experience helping South Africans build and protect their financial futures. We don’t just explain the options we help you make the right decision for your specific circumstances.
Ready to talk? Visit our Investments page to learn more about how Ambiton approaches retirement planning or contact us directly to book a no-obligation consultation.
Frequently Asked Questions
What is the two-pot retirement system in South Africa?
The two-pot retirement system is a reform that came into effect on 1 September 2024. It splits all new retirement fund contributions into two pots: a savings pot (one third of contributions), which you can access once per tax year before retirement, and a retirement pot (two thirds of contributions), which is locked until you retire and must be used to purchase an annuity income.
How much can I withdraw from my savings pot?
You can withdraw a minimum of R2,000 up to the full available balance in your savings pot, once per tax year. You must be registered for tax with SARS before applying. Your fund administrator will deduct a fee, and SARS will tax the withdrawal at your marginal income tax rate before paying out the balance.
How is a savings pot withdrawal taxed?
Savings pot withdrawals are taxed at your marginal income tax rate - the same rate applied to your salary. This is not the favourable retirement lump sum tax table. If you are in a 36% tax bracket and withdraw R30,000, you will receive approximately R19,200 after tax and administration fees. Any SARS tax debt will also be deducted before payment.
What is the difference between the savings pot, retirement pot and vested pot?
The savings pot receives one third of all new contributions from 1 September 2024 and is accessible once per tax year. The retirement pot receives two thirds of all new contributions and is locked until retirement. The vested pot contains all money you saved before 1 September 2024 - the old rules still apply to this portion, and it can still be accessed when you change jobs, subject to tax.
Does the two-pot system apply to retirement annuities?
Yes. The two-pot system applies to all retirement funds in South Africa, including retirement annuities, pension funds, provident funds and preservation funds. From 1 September 2024, one third of your RA contributions go into your savings pot and two thirds into your retirement pot. The retirement pot in an RA remains locked until age 55, as before.
What is the seed capital in the two-pot system?
Seed capital was a once-off amount transferred into your savings pot when the two-pot system launched on 1 September 2024. It was calculated as 10% of your total retirement fund value as at 31 August 2024, capped at R30,000. This gave all fund members immediate access to a portion of their existing savings from day one of the new system.
Can I still cash out my full retirement fund when I change jobs?
Partially. Under the two-pot system, your vested pot (savings before 1 September 2024) still follows the old rules and can be accessed when you leave an employer. However, your retirement pot, which receives two thirds of all new contributions, cannot be cashed out when you change jobs. It must remain invested until retirement. This change is designed to prevent the cycle of cashing out full pension funds on job changes, which is one of the primary reasons less than 6% of South Africans retire comfortably.
Editorial Notes:
TAX RATES TABLE: The marginal tax rate brackets used in the table are based on the 2024/25 SARS tax tables. Please verify these are still current for the 2025/26 tax year before publishing and update if necessary.
FIGURES TO VERIFY BEFORE PUBLISHING: R2,000 minimum withdrawal amount | R30,000 seed capital cap | 10% seeding calculation | 1.2 million applications / R22 billion withdrawn (Nedbank research, October 2024, more recent figures may be available) | 6% comfortable retirement statistic (National Treasury).
COMPETITOR GAPS IDENTIFIED: The top-ranking content on this topic (Allan Gray, Old Mutual, Sanlam, Investec) is technically accurate but written for a general audience and focused on their own products. Ambiton’s version differentiates by: (1) including a concrete tax impact table with real rand amounts, (2) an honest “when to withdraw / when not to” framework, and (3) the compound growth illustration. These three elements are absent from all competitor pages reviewed.