Two-Pot Retirement System: What South African SMEs Need to Know

The two-pot retirement system is one of the most significant changes to South Africa's retirement landscape in decades. For employers, it introduces new payroll complexities that require careful attention.

What Is the Two-Pot System?

From 1 September 2024, all retirement fund contributions are split into two "pots":

• Savings pot (one-third): Accessible once per tax year in cases of financial hardship, subject to tax at your marginal rate.
• Retirement pot (two-thirds): Preserved until retirement — cannot be accessed early.

Employer Obligations

As an employer, you are responsible for ensuring your payroll system correctly allocates contributions between the two pots. Failure to do so could result in SARS penalties and employee disputes.

Key actions for employers: 1. Update your payroll software (Xero Payroll and SimplePay have both released updates) 2. Communicate clearly with employees about how their contributions are split 3. Ensure your retirement fund administrator has updated their systems 4. Review your employment contracts — some may reference the old single-pot structure

Tax Implications

Withdrawals from the savings pot are taxed as income in the year of withdrawal. This means employees who access their savings pot will receive a lower net amount than expected. As the employer, you are not responsible for this tax — it is deducted by the fund administrator — but you should be prepared to answer employee questions.

What to Do Now

If you haven't already, contact your payroll provider and retirement fund administrator to confirm their systems are compliant. Solaris Advisory Group can assist with a payroll compliance review to ensure your business is fully aligned with the new requirements.