South Africa
The South African government has recently released draft legislation that would divide occupational retirement contributions into two pots, making one-third of the funds accessible prior to retirement and the remaining two-thirds available only at retirement or death. The new system, known as the “two-pot” system is expected to come into effect on 1 March 2024, at the earliest—the government has proposed an implementation delay that would move all implementation dates from 2024 to 2025, but it remains to be seen whether Parliament will adopt the postponement.


The reform aims to enable members of occupational pension schemes to access a portion of their savings during their employment in cases of hardship while preserving sufficient funds for retirement. This change is also expected to double members’ savings at retirement. 

Key details

The draft legislation, which amends the Income Tax Act and the Pension Funds Act, would create two pots of money with differing treatments for amounts accumulated before and after 1 March 2024, as follows:

The saving pot

The savings pot would be funded by one-third of the contributions made to occupational pensions after 1 March 2024. Members would be permitted to make cash withdrawals from the savings pot once per tax year prior to retirement.

This pot would be initially funded through a transfer from funds accumulated prior to 1 March 2024, up to 10% of the member’s retirement fund balance, capped at SAR 30,000 (the cap amount is still being debated and may increase once the law is passed).

Members could choose, before or after retirement, to transfer a portion or the full amount of their savings pot to their retirement pot to be used for an annuity. Such transfers would not be reversible. The member would also have the choice to instead withdraw the full remaining balance in their savings pot as a cash lump sum at retirement.

Treatment of assets accumulated prior to 2024: known as the “vesting component”

This component would includesavings and returns accumulated in the retirement account

prior to 1 March 2024 minus the amount transferred to the saving pot. This component would continue to be subject to the current rules and benefits even after 1 March 2024. This means that members would continue to have the right to:

  • Full cash withdrawal at resignation and dismissal or retrenchment from an employer’s pension or provident fund
  • Cash withdrawal of up to one-third of the vesting component funds at retirement and use the remaining amount for an annuity. 

Members would be able to choose, before or after retirement, to transfer a portion of their total vested component to their retirement pot to be used for an annuity. Such transfers would not be reversible.

The retirement pot

Starting 1 March 2024, two-thirds of a member’s retirement contributions would be assigned to the retirement pot. This pot would only be available as an annuity at retirement. However, members who are no longer South African tax residents would be able to withdraw their retirement pot in cash before retirement after having moved abroad. In addition, if, at retirement, the amount of the member’s vested and retirement pots combined is under SAR 247,500, full cash withdrawal of that amount would be possible. Taxation rules for the retirement fund currently in place would remain the same after 1 March 2024.

If the member dies, the retirement and saving pots would be provided to dependents as an annuity, a lump sum, or a combination of both. 

It is expected that the two-pot approach will apply to Defined Contribution, Defined Benefit and hybrid plans, subject to some adjustment and flexibility according on the plan. More details on how the pot amounts will be calculated should be released at a later date once the draft legislation passes.

Next steps

The draft legislation will likely be amended before it is passed. Additional details on the administration of the new proposed pots as well as the amendments that need to be made to the pension plan rules will be clarified closer to the passage of the legislation. Lockton Global Compliance People Solutions Practice will publish an update once the Bill is passed.