On August 10, 2025, South Africa officially enters a new phase in its pension system as the two-pot retirement model comes into effect. This major reform, developed by the National Treasury and approved by Parliament, is one of the most significant changes to pension legislation in recent decades. Aimed at promoting long-term savings while offering short-term financial access, the system is expected to benefit millions of workers across the country.
The reform has been widely discussed and debated since it was first proposed. Now that it’s finally being implemented, individuals contributing to retirement funds especially those in the private sector need to understand how their savings will be managed and how withdrawals will work moving forward.
How the Two-Pot Retirement System Works
The two-pot system divides pension contributions into two separate categories: a savings pot, which allows limited early access, and a retirement pot, which must remain untouched until retirement. This reform was created to address the growing need for workers to access emergency funds without compromising their entire retirement savings, as was often the case in the past.
From August 10, all new retirement contributions will be split into these two pots:
| Component | Share of Contribution | Access Rules | Tax Treatment |
|---|---|---|---|
| Savings Pot | 1/3 | One withdrawal allowed per year (min R2,000) | Taxed at marginal income tax rate |
| Retirement Pot | 2/3 | Only accessible upon retirement | Taxed at retirement lump sum rates |
| Vested Component | Pre-August 10 savings | Governed by old rules | Unchanged |
The vested component refers to all funds saved before August 10. These funds remain in place under the existing regulations, allowing members to preserve or withdraw them according to old rules during events like resignation or retrenchment.
Who Will Be Affected by the New Rules
The two-pot system affects all members of retirement annuity funds, pension funds, and provident funds. Employers and retirement fund administrators are required to implement the new model for contributions made after the reform date. The rule does not apply to funds that have been paid out or to individuals who have already retired before August 10.
Those who contribute to retirement funds through formal employment will now see their monthly pension contributions automatically split. Self-employed individuals participating in formal retirement vehicles will also be subject to the same contribution rules. However, the system does not apply to informal savings schemes or traditional stokvels.
Why the Reform Was Introduced
For years, South Africa has struggled with low pension preservation levels. Workers withdrawing all their retirement savings when changing jobs or facing financial hardship was a common trend, leading to insufficient funds during old age. The two-pot system addresses this issue by ensuring that the majority of savings are ring-fenced for retirement, while a smaller portion can be accessed for emergencies.
Government policy-makers also hope the new system will reduce dependency on state welfare in the future by encouraging a stronger savings culture and greater pension security for retirees.
What Members Should Do Now
Employees and fund members are encouraged to review their retirement fund statements and consult with their HR departments or financial advisors to understand how the transition will affect them. Those looking to make withdrawals from the savings pot should be aware that only one withdrawal is permitted per tax year, and the minimum amount is set at R2,000. The withdrawals are taxable and will be added to the individual’s annual income, potentially pushing them into a higher tax bracket if not carefully planned.
Fund administrators have updated their systems to reflect the changes, and most are offering member education sessions, webinars, and digital portals for members to track their contributions and available balances under the new system.
Conclusion: A Balanced Model for Savings and Access
The implementation of the two-pot retirement system from August 10 marks a new chapter for South Africa’s retirement landscape. It introduces a practical balance between financial flexibility and future security, offering South Africans the chance to access part of their pension without depleting their retirement funds entirely. While the system may take some getting used to, it is a step toward creating a more resilient and responsible savings culture across the country.