Making SA’s two-pot retirement system work for you
Statistics show that only 6% of South Africans can afford to retire comfortably. The reality? Many are forced to continue working to pay off debt, care for family or drastically adjust their lifestyles due to unforeseen costs. South Africa’s two-pot retirement system allows access to a portion of your retirement savings while preserving the rest for your future. Understanding when and how to use these funds wisely is key to maintaining long-term financial security
First, choose the right retirement vehicle for you
As our client, you have access to various retirement savings options, each with unique benefits. Knowing which option to take requires an understanding of the associated benefits and strategies.
- Retirement annuities (RAs): A tax-efficient way to save, allowing you to deduct contributions (up to 27.5% of taxable income) while enjoying tax-free growth.
- Pension and provident funds: Employer-backed savings that offer stability and employer contributions.
- Tax-free savings accounts (TFSAs): While not a traditional retirement vehicle, TFSAs provide tax-free withdrawals, making them a great long-term supplement.
Plan for growth over time
Your retirement fund is designed to grow over time without being interrupted. With time, you’ll reap the benefits of compound interest and investment returns. Making frequent withdrawals for non-urgent expenses could significantly impact the growth of your retirement pot. A better approach is to build an emergency fund in a high-interest savings account or explore diversified investment options. Our savings accounts provide an excellent way to grow your savings while ensuring tax efficiency. These products allow you to build a financial buffer without compromising your retirement.
Make smart choices with your two-pot savings
Would you use a backup generator as your main power source every day? Most would agree that it’s not a viable option. In the same way, the accessible portion of your two-pot retirement savings isn’t a free pass to splurge. According to the South African Revenue Service (SARS), by February 2025, more than 2.4 million members applied to withdraw R43 billion from savings, since the two-pot system was introduced on 1 September 2024. That’s 40% of the 6.5 million South Africans who contribute to retirement funds. Remember, it’s a safety net designed for emergencies, not everyday expenses. Treat it like the precious resource it is.
Making smart decisions today can secure your future financial freedom – but it’s not just about putting money away in anticipation of a comfortable retirement. The two-pot system gives you immediate access to funds when needed most without putting your fund’s long-term sustainability at risk. However, the consequences of misusing these savings can be severe.
Be informed about tax so you can maximise savings
Short-term financial needs can make tapping into your savings pot tempting, but have you considered the tax implications? Withdrawing from your savings pot before retirement means you’ll pay more tax upfront, reducing the amount you actually receive. Instead of using these funds for everyday expenses, building an emergency fund ensures you have savings available that won’t affect your retirement security. Many individuals make the mistake of withdrawing without calculating the tax impact, leading to unexpected financial setbacks.
Consulting with a Standard Bank Private wealth advisor, through your Private Banker, can help you understand how withdrawals affect your financial plan. According to the South African Revenue Service (SARS) the retirement annuity tax refund threshold is R95 750 if you’re younger than 65 years, R148 217 if you’re between 65 and 75 years, and R165 689 if you’re 75 years and older. With a tax-free savings account from Standard Bank, you get your full investment return without being taxed on the growth you earn. The amount you can save in a tax-free savings account is limited, so it’s best to consult a tax expert about the thresholds for retirement annuity and tax-free savings accounts.
An advisor can guide you through tax-efficient strategies, helping you maximise your savings while securing your financial future. Remember, every smart decision you make today strengthens your long-term prosperity.
Diversify your wealth to manage risk
Relying solely on a pension fund for retirement is risky. A wealth advisor can help you structure comprehensive financial plans, but these are some investment avenues to consider:
- Property investments:
Real estate provides long-term capital appreciation and rental income. Our home loan solutions can help you finance high-value properties that enhance your investment portfolio. Property investments, however, can attract maintenance costs and risks associated with geographic concentration and tenant laws.
Ask your advisor:
Is this the right investment category for me?
How can I diversify my real estate portfolio to minimise geographic concentration risks?
How can I structure my property investments to maximise long-term capital appreciation while managing risks like maintenance costs and tenant regulations? - Stock market and forex trading:
Investing in shares or trading foreign currencies through platforms like Shyft offers opportunities for portfolio diversification.
Ask your advisor:
Do I have the right mix of shares?
Is this strategy suited to my lifestyle?
Is there a risk profile matrix I should be aware of? - Private equity and alternative investments:
High-net-worth individuals often seek higher returns by investing in private equity, hedge funds, or venture capital, including offshore and structured products. Becoming a shareholder in a company, franchising, or creating your own company are other ways to create additional income. Our team has a suite of solutions to help you make the right choice.
Ask your advisor:
What are the key risks and potential returns associated with private equity and alternative investments?
How do they compare to traditional asset classes?
How can I include offshore and structured products in my portfolio while ensuring tax efficiency and regulatory compliance?
Balancing your portfolio ensures you’re prepared for financial fluctuations while securing multiple revenue streams for your retirement. A savvy investor doesn’t rely on a single income stream. Diversifying your portfolio is like building a pathway to retire comfortably.
Speak to an expert and make informed decisions
The long-term effects of the two-pot system are still unfolding, but with the right financial guidance, you can confidently navigate this new landscape. Expert advice ensures you make informed decisions that balance your immediate needs with a secure financial future.
The two-pot system is there to help you build long-term financial resilience. It’s not an instant windfall. If you use it wisely, it’ll help you to live out your dream retirement. So, take control of your finances, understand the system, and make wise choices today for a comfortable future.