The two-pot system for retirement investments in South Africa is an innovative reform designed to balance the preservation of retirement savings with the need for early access to funds. However, the full system is often more accurately described as a ‘three-pot system’, as it incorporates a third component: currently vested savings.

Under this approach, retirement contributions are distributed into three distinct segments:

• Vested Pot (Currently Vested Savings): This pot comprises savings accumulated before the introduction of the new system (1 September 2024), as well as amounts that were already accessible under previous legislation. These vested funds continue to be governed by the rules under which they were originally saved, meaning they may still be available for withdrawal under certain circumstances, subject to historic regulations. This is the money you saved up before the new rules started. The old rules still apply to this chunk, so if you could withdraw before, you probably still can, but it depends on your fund’s original terms.

• Savings Pot: This pot allows for limited pre-retirement withdrawals, offering South Africans a degree of financial flexibility for emergencies while safeguarding most of their long-term savings. This is the bit you can dip into if you run into a real emergency. Need to fix the roof or pay for something unexpected? You can take some money out of this pot, but not all of it, just a little to help you out.

• Retirement Pot: Funds in this pot remain preserved until retirement age, ensuring that individuals have resources set aside for their future and cannot access these before retirement. This pot is locked up tight until you actually retire. Think of it as your 'future-you' fund. No touching until you’re ready to leave work for good.

The inclusion of the vested pot helps clarify how pre-existing retirement savings are handled under the new system, ensuring that members retain rights over their earlier contributions while benefitting from the security and flexibility of the new two-pot model. By restricting access to just the savings pot, and preserving both the retirement and vested pots, the system aims to address the challenge of premature withdrawals that have historically eroded retirement savings. These reforms foster a stronger culture of long-term financial planning and personal security, providing benefits both to individuals and the broader South African economy.

In short: you get a bit more flexibility with your savings, but most of your money is still being kept safe for when you retire. The idea is to stop people cashing out their whole pension every time life throws a curveball, but also to give you a little breathing room if things get tough. It’s about helping you plan for the future, without leaving you stranded in the present.