THE TWO POT RETIREMENT SYSTEM AND DIVORCE.

The Two-Pot retirement system, established by the Pension Funds Amendment Act 31 of

2024, introduces a fresh approach to retirement savings. This system splits contributions into

two distinct components:

1. The “savings” pot, which permits limited pre-retirement withdrawals for

emergencies.

2. The “retirement” pot, which is reserved until the official retirement age.

This structure seeks to strike a balance between the need for accessible funds and the

importance of long-term savings. However, it also raises critical questions regarding the

treatment of these funds during divorce proceedings.

Impact on the various marital regimes

For couples married in community of property, the principle of equal division of the joint

estate remains central. Under Section 7(7)(a) of the Divorce Act 70 of 1979, pension

interests are considered part of the assets to be divided. With the Two-Pot system, both the

savings and retirement pots will be included in this equal division.

In South Africa, a marriage without an antenuptial contract automatically defaults to

community of property, creating a joint estate where both partners share ownership of all

assets and liabilities.

The introduction of the Two-Pot system does not change this core principle. Despite the

potential impact on retirement savings accessibility, the equal division of marital assets,

including pension interests, stays intact for couples married in community of property.

In marriages out of community of property with accrual, the Two-Pot system introduces some

complexities. According to Section 3 of the Matrimonial Property Act 88 of 1984, the spouse

with the larger estate must compensate the other to equalize growth during the marriage.

Both pots will need to be evaluated in this calculation, complicating the valuation process.

In this scenario, when a marriage ends, the spouse whose estate has increased more

significantly is obligated to make a payment to ensure a fair distribution of the wealth

accumulated during the marriage. While this equalization principle remains unchanged, the

Two-Pot system requires a more detailed assessment of assets, as the characteristics and

accessibility of these funds differ within the new framework.

The Two-Pot retirement system represents a significant shift in retirement savings, aiming to

balance immediate financial needs with long-term security. However, its implications for

divorce settlements, both in community and out of community of property, call for careful

examination. As the legal landscape evolves, it’s essential for individuals to understand how

these changes might influence their financial situations during marital dissolution. Chat to us

and let us help you navigate these complexities.