What does Two Pot mean for my legacy

September marked the introduction of the two-pot system of access to retirement savings for South Africans. Capital Legacy National Manager of Succession Planning and High Advice, Ken Newport, explains how Two Pot will – and won’t – impact your legacy.

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What is Two Pot?

The two-pot system addresses the dual need for liquidity and long-term retirement savings. It splits retirement savings into two pots:

  • Retirement Pot: The portion of retirement savings that remains locked until retirement age, for long-term security.
  • Savings Pot: The portion of retirement savings that can be accessed before you retire, but under specific conditions, and for short-term financial needs.

Two Pot allows some immediate financial flexibility while preserving the majority of retirement savings for the longer term.

Your retirement savings and estate planning

“When drafting your will, it’s essential to understand which assets form part of your estate and which do not. In South Africa, retirement funds, retirement annuities, preservation funds and provident funds – whether they are governed by the old system or the new two-pot system – do not form part of your estate”, says Newport

In short, your retirement funds don’t form part of your assets that are distributed according to your will when you pass away. The beneficiaries who should benefit from your retirement fund must be stated on your retirement fund policy documents.

South Africa’s Pension Funds Act stipulates how the benefits of a retirement fund member are to be distributed upon their death. This law gives trustees of the retirement fund the power to distribute benefits directly to dependents, overriding the instructions in a will.

“When you join a retirement fund, you will typically be asked to nominate beneficiaries who should receive the benefits upon your death. However, this nomination is not binding, and trustees of the fund have the final say based on their assessment of your dependents’ needs. Your will, on the other hand, is the final word in terms of heirs who will inherit the assets that do form part of your estate.

“Even with the implementation of the two-pot system, the retirement savings ‘pot’ still falls under the Pension Funds Act and the savings portion is still not part of your estate, so effectively there is no change to, or impact on, your estate planning – provided you are not making withdrawals,” explains Newport.

He cautions, “There is a nuance, however. If you withdraw funds from your savings pot during your lifetime, then that cash, or the assets you purchase with those funds, will form part of your estate, will be distributed according to your last will and testament, and be subject to standard estate planning laws, including estate duty.”

Estate planning, with Two Pot in mind

Ken Newport, National Manager of Succession Planning and High Advice at Capital Legacy.
Ken Newport, National Manager of Succession Planning and High Advice at Capital Legacy.
  • Estate duty and tax implications: Retirement benefits are exempt from estate duty, but any withdrawals made from the savings pot during your lifetime and remaining in your estate may be subject to estate duty. Retirement fund benefits are subject to tax, and the tax will differ depending on whether the funds are withdrawn before or after you retire.
  • Review your will regularly: Besides updating your will whenever you undergo a major life event (e.g. marriage, divorce, purchasing a property, having or adopting a child), also ensure that your will reflects any changes to your financial situation, including withdrawals from your savings pot.
  • Keep your beneficiaries up to date: Make sure the beneficiary nominations on your retirement fund are current and aligned with your estate planning goals.

“I would recommend consulting with an estate planner or your financial advisor to help you navigate the complexities of the two-pot system and ensure that your retirement savings are effectively integrated into your overall estate plan,” Newport concludes. 


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