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Your Pension, Your Pots: Clear‑Cut Realities of South Africa’s Two‑Pot System in 2025
Picture this: you’re brewing your Monday morning coffee in Jozi, scrolling through your phone, and a headline catches your eye, “You can raid your pension anytime!” Suddenly, fiscal panic kicks in. Well, let’s pour some clarity into that mug. No, you can’t freely tap into your entire pension now. Yes, there’s a smart way the system is designed to protect your future while giving you a lifeline if things get tough.
A Little Backstory
Not so long ago, dipping into your retirement fund when changing jobs could leave your golden years underfunded. But as of 1 September 2024, a reform kicked in: the long‑awaited Two‑Pot Retirement System. It breaks your pension into three sensible bits, each governed by its own rules.
Meet the Pots
Vested Pot: This is your pre‑September 2024 savings; nothing changes here. It’s like the solid foundation of your pension home. You can access it if you resign, are retrenched, or retire. It’s untouchable by the new rules, but still tax applies when you withdraw.
Savings Pot: Think of this as your “rainy‑day fund” within your retirement. Starting 1 September 2024, a bit of your pension was seeded into here, 10 percent of your previous pot (capped at R30 000). And from then on, for every contribution you and your employer make, one-third goes into this accessible pot. You’re allowed one withdrawal per tax year, but the withdrawal must be at least R2 000 and is taxed at your income rate. You also need to be registered with SARS to get your tax directive sorted first.
Retirement Pot: This is the fortress for your future; you can’t touch it until you retire. Two-thirds of your post‑2024 contributions go here, building a nest egg that must be used to buy an annuity later unless very specific conditions apply.
What Happens When You Hit 55 or Retire
Once you retire, generally at 55 or per your fund rules, you’ll get:
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From the vested pot, you can take a portion in cash (depending on your fund type), with the rest converting to annuity.
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The Savings Pot remainder can be taken in cash; no forced annuity here.
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The Retirement Pot must fund your annuity, although smaller balances (generally under R165 000) may allow full cash withdrawal.
Taxing Truths to Keep in Mind
Here’s the gist of the tax treatment from SARS for 2025:
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Lump sum withdrawals are taxed incrementally; smaller amounts might be tax‑free, but larger ones go higher on the scale. For example, retirement lump sums under R550 000 are taxed at 0 percent; between R550 001 and R770 000, at 18 percent; climb to 27 percent above R770 001; and peak at 36 percent above R1 155 000.
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Year‑on‑year, every lump sum you’ve ever received gets aggregated for tax calculation, so keep a sharp record of those earlier payments; they reduce your tax burden on later amounts.
A Joburger’s Take
On social media, many are saying, “Finally, a safety valve without selling off your golden years!” But a few savvy folks warn: withdrawing even R2 000 annually means forfeiting decades of compound growth. Others highlight the admin hassle: tax directives, banking details, and fund processing; it’s not instant cash.
Final Word
The Two‑Pot system is about balance; it gives you a small escape hatch but shields the big picture. For everyday Jozi families, this means less tension when life throws curveballs, but also a reminder to tread wisely. If in doubt, talk it through with someone who crunches numbers for a living.
Also read: Can Your Boss Force You to Retire? Know Your Rights in 2025 South Africa
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Featured Image: Business Today
