The two-pot retirement system and your payroll
Since 1 September 2024 every South African retirement fund contribution is split into two parts: one third into a savings component that may be withdrawn once each tax year, and two thirds into a retirement component preserved until retirement. Balances built up before that date sit in a vested component under the old rules.
Payroll Africa Editorial · SARS Payroll Compliance Team
The Payroll Africa editorial team is composed of registered tax practitioners, payroll administrators and BCEA specialists who maintain the SARS PAYE, UIF, SDL and ETI engines that power the platform. Every article is reviewed against the current SARS BRS and Basic Conditions of Employment Act before publication.
- SARS registered tax practitioners
- SAPA-affiliated payroll administrators
- BCEA and LRA compliance reviewers
Last updated 26 Aug 2026
The three components explained
The reform did not change how much is contributed — it changed what happens to it. Contributions made from 1 September 2024 split one third to savings and two thirds to retirement. Everything accumulated before that date became the vested component and continues under the pre-reform rules, including the right to take the full amount in cash on resignation for pension and provident funds.
A once-off seeding amount moved 10% of the vested balance, capped at R30,000, into the savings component when the system started, so that members had something available to draw on immediately.
- Savings component — one third of contributions, one withdrawal per tax year, minimum R2,000
- Retirement component — two thirds of contributions, preserved and annuitised at retirement
- Vested component — pre-September 2024 balances under the old rules
- Seeding — 10% of the vested pot, capped at R30,000, moved to savings at launch
How savings withdrawals are taxed
A savings withdrawal is taxed at the member's marginal income tax rate, not at the favourable retirement lump-sum tables. The fund applies to SARS for a tax directive, SARS calculates the tax and also sets off any outstanding tax debt the member owes, and the fund pays the balance. Members are frequently surprised by how little arrives, because a R30,000 withdrawal for someone in the 31% bracket delivers roughly R20,700 before the administration fee.
Withdrawals are limited to one per tax year, with a minimum of R2,000 and no maximum beyond the savings balance itself.
What employers actually have to do
The withdrawal itself happens between the member and the fund — the employer is not the paying agent and does not deduct the tax. The employer's duties are narrower but still real, and they sit squarely on the payroll.
- Keep contributions correctly split and reported to the fund each month
- Report the employer contribution as a fringe benefit under code 3817 or 3825
- Report employee and deemed employee contributions under code 4001/4472 correctly
- Watch the section 11F deduction cap: 27.5% of the greater of remuneration or taxable income, limited to R350,000 a year
- Expect employees to ask HR about withdrawals — direct them to the fund, not to payroll
The payroll trap: tax directives and PAYE
A savings withdrawal increases an employee's taxable income for the year, but the tax is settled by the fund on directive — the payroll must not also tax it. The risk runs the other way too: because SARS treats the withdrawal as income, an employee who withdraws may fall short on assessment if their remuneration-based PAYE was calculated without it. Employees planning a withdrawal should be told to expect that outcome rather than discovering it at filing season.
Payroll Africa keeps retirement contributions, the section 11F cap and the fringe-benefit source codes correct on every payslip and IRP5, so the fund's directive and your reconciliation agree.
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