There’s been a lot of buzz around the Two-pot retirement system that officially came into effect on September 1, 2024. It’s a significant shift in how retirement savings are managed in South Africa, and with it comes a host of questions and uncertainties. To get to the bottom of things, I had a fascinating chat with Brett Ladouce, one of our Personal Finance columnists, who also happens to be a pension funds lawyer and the author of Pensions for Palookas. Together, we unpacked one of the most burning questions people have: What happens to your retirement savings when you resign from your job? Can you cash out your pension fund and walk away with a lump sum?
Let’s dive in.
According to Ladouce, when you resign under the Two-pot system, you have access to the funds in your Vested Pot and Savings Pot. You can withdraw this money as a lump sum, provided you adhere to specific rules. However, the Retirement Pot is a different story. Any money in this pot must remain there until you reach retirement age, where it’ll be used to purchase an annuity that provides you with income during your golden years.
Here’s where it gets a bit technical: At this stage, you’re most likely to have the bulk of your savings in the Vested Pot, which means you can take that money in cash, should you need it. The only contributions that are locked in the Retirement Pot are those made from September 2024 onwards. In other words, your contributions for September, October, November, and December 2024, as well as January and February 2025, must stay in the Retirement Pot and can’t be accessed until retirement.
This is where things get interesting. The introduction of the Two-pot system brought a new dynamic to how we manage retirement funds. Since September 2024, members have noticed a new component in their retirement fund: the Savings Pot. But what exactly is the starting balance of this pot?
Well, it depends. Every retirement fund member has a starting balance unique to them, based on the value of their retirement fund as of August 31, 2024. A once-off allocation, known as seed capital, was transferred from the Vested Pot to the Savings Pot. The seed capital is calculated as 10% of the member’s total fund value on that date, but it’s capped at a maximum of R30,000. This means that no matter how much you’ve saved, your Savings Pot seed capital will not exceed R30,000.
Here’s the good news: Since September 2024, you have had the flexibility to withdraw money from your Savings Pot at any time. Whether you need funds for an emergency or simply want to treat yourself, you can access your savings—but only up to the balance available in the Savings Pot. This newfound accessibility is a game-changer, but it also comes with responsibilities. You’ll need to balance short-term needs with long-term planning to ensure you’re not dipping into your retirement savings too often.
If you decide to resign and move to a new job, one of the options you have under the Two-pot system is transferring your retirement savings to your new employer’s retirement fund. This is a good option for those who wish to keep their retirement savings growing without taking a withdrawal.
Instead of cashing out, you can opt to transfer the funds in both your Vested Pot and Savings Pot to your new employer’s fund, where it can continue to be invested and accumulate returns over time. This is a great way to keep your retirement savings intact and ensure that you’re still contributing to your long-term financial security.
Additionally, if you don’t have a new employer offering a retirement fund, you can also transfer your savings to a preservation fund. A preservation fund allows you to continue to save for retirement without triggering taxes on the amount transferred. This means you won’t have to access your savings early and can still benefit from long-term growth in the fund.
It’s important to note that if you transfer your savings, the rules for accessing the funds (such as withdrawal restrictions) would depend on the specific terms of the receiving fund. This option offers greater flexibility and helps ensure that your retirement savings remain intact for the future.
The Two-pot system aims to strike a balance between flexibility and financial security. While it gives you more control over your savings in the short term, it also enforces stricter rules to safeguard your future. Resigning under this system doesn’t mean you’ll lose access to all your funds, but it’s vital to understand the rules and plan accordingly.
If you’re considering resigning or want to make the most of the Two-pot system, it’s worth speaking to a financial advisor. They can help you navigate your options and ensure you’re making decisions that align with your retirement goals.
Remember, your retirement savings are more than just a pot of money—they’re your ticket to a secure and comfortable future.
* Maleke is the Personal Finance editor.
PERSONAL FINANCE