Legacy Planning in a Two-Pot World: Protecting Family Wealth in a Changing Retirement Landscape

Introduction

Legacy planning has become an essential component of holistic financial advice in South Africa, particularly as the country experiences a generational shift in wealth and economic participation. With rising financial literacy, increased awareness around estate structuring, and a growing desire among South Africans to leave a lasting legacy, the need for strategic, future-focused financial planning has never been greater.

At the same time, the retirement savings environment is undergoing a fundamental transformation. On 1 March 2024, the Two-Pot Retirement System came into effect; a reform designed to strike a balance between long-term savings discipline and short-term financial flexibility. While the new system offers greater access to retirement savings during a member’s working life, it also introduces complexities that directly impact legacy and estate planning.

Under this system, retirement fund contributions are now split into two distinct components:

A Savings Pot, comprising one-third of contributions, which allows limited pre-retirement access.
A Retirement Pot, comprising two-thirds of contributions, which must be preserved until retirement and is subject to annuitisation rules.

While the intent behind this reform of improving financial resilience and reduce early withdrawal of retirement savings, is clear, the implications for intergenerational wealth transfer are profound. Reduced access to lump sums upon death, increased reliance on annuitised benefits, and stricter controls over fund accessibility mean that clients may no longer be able to rely on their retirement savings as a straightforward vehicle for leaving wealth to loved ones.

This article explores how the Two-Pot Retirement System affects legacy planning for South Africans and what financial professionals must consider when advising clients in this new environment. From understanding the technical mechanics of the system to navigating the risks and identifying strategic alternatives, we aim to provide a comprehensive guide for advisors who want to stay ahead of the curve and ensure their clients’ long-term goals are still achievable.

As we delve deeper into this topic, we will also highlight practical tools, including trusts, life insurance, and offshore structures, that can support legacy outcomes, even as retirement frameworks evolve. Ultimately, legacy planning remains as relevant as ever, but it now requires a more nuanced, proactive, and multi-disciplinary approach.

2. Understanding the Two-Pot System

The Two-Pot Retirement System, introduced in South Africa on 1 March 2024, marks one of the most significant changes to retirement savings in decades. Its aim is to strike a better balance between preservation for retirement and accessibility during times of financial hardship. While the reform is primarily designed to improve long-term retirement outcomes, it also brings new layers of complexity, especially when it comes to legacy and estate planning.

What Is the Two-Pot System?

Under the new system, contributions to retirement funds (including pension, provident, and retirement annuity funds) are split into two separate components:

1. The Savings Pot

Receives one-third of all new contributions after 1 March 2024.
Allows members to make one withdrawal per year, subject to tax, for emergencies or unexpected financial needs.
Accessible before retirement, but not immediately. A minimum of R2,000 must accumulate before a withdrawal can be made.

2. The Retirement Pot

Receives the remaining two-thirds of all new contributions.
Preserved until retirement, with no access before retirement (except in cases of death or disability).
At retirement, this portion is subject to annuitisation, meaning only a portion (typically one-third) can be taken as a lump sum, while the rest must be used to purchase a pension income (annuity).

A third component, known as the vested pot, holds all accumulated retirement savings prior to 1 March 2024, and will continue to be governed by the old rules unless converted under specific circumstances.

How It Differs from the Previous System

Before the introduction of the Two-Pot System, retirement fund members had more flexibility at retirement, including the ability to withdraw the full value of a provident fund in cash (subject to tax). Pre-retirement withdrawals were also more accessible in many cases, particularly upon resignation or retrenchment.

Under the new system, access is strictly controlled as follows:

Pre-retirement access is limited only to the Savings Pot, and only once a year.
The Retirement Pot is locked in until retirement, and most of it must be used for income generation.
Upon one’s death, different rules apply depending on the pot, adding complexity to beneficiary planning and fund nomination strategies.

This shift reduces the liquidity available at the time of death, a significant consideration in estate planning, where immediate access to cash is often required to cover costs such as executor’s fees, estate duty, debts, and bequests.

Implications for Retirement Fund Nominations and Estate Liquidity

One of the most misunderstood areas of the Two-Pot System is how it interacts with estate planning and death benefits.

a. Death Before Retirement

If a member dies before retirement:

The benefits from both the Savings Pot and the Retirement Pot become payable to dependants and nominees, as determined by Section 37C of the Pension Funds Act.
These benefits do not form part of the deceased’s estate unless there are no dependants or nominees; a fact that needs to be clearly understood by clients.
Trustees of the fund have discretion in allocating benefits, which can delay payout and introduce uncertainty for families expecting direct inheritances.

b. Tax and Access Implications

Death benefits are taxed according to the retirement fund lump sum death benefit tax table, which may reduce the total value passed on.
Beneficiaries may not receive a lump sum at all. Depending on the size of the benefit, they may be forced to annuitise, particularly if the Retirement Pot exceeds a certain threshold.
This limits liquidity and reduces the potential to use retirement funds as a primary legacy tool.

In summary, while the Two-Pot System promotes long-term financial discipline, it fundamentally reduces flexibility around how retirement savings are accessed, both during life and at death. For financial advisors, this means a strategic pivot is needed: traditional legacy planning tools may no longer suffice on their own, and advisors must consider new structures and strategies to meet their clients’ legacy goals.

3. Legacy Planning Under Pressure: Challenges Introduced by the Two-Pot System

The introduction of the Two-Pot Retirement System is a well-intentioned reform aimed at protecting long-term savings, while offering limited early access during times of need. However, from a legacy planning perspective, this new structure introduces several challenges that significantly limit the role of retirement savings in intergenerational wealth transfer. Financial advisors must now reassess assumptions, recalibrate estate planning strategies, and prepare clients for a more restrictive landscape.

Reduced Lump Sum Availability at Death

One of the most pressing issues under the Two-Pot System is the reduced ability to access lump sums from retirement savings upon a member’s death. Previously, many clients viewed their retirement funds, particularly provident funds, as vehicles not only for retirement income but also for leaving behind a meaningful inheritance.

Under the new framework, however, the following should be noted:

The Retirement Pot is ring-fenced for annuitisation, meaning that even at death, beneficiaries may not have full access to a lump sum.
If the deceased had not yet retired, the death benefit is subject to trustee discretion under Section 37C, which governs how funds are allocated among dependants and nominees.

Importantly, these benefits are not guaranteed to be paid as lump sums. Where the value is substantial, beneficiaries may be compelled to take the benefit as an annuity, which severely limits their immediate access to capital.

This constraint poses a significant issue for legacy planning, where clients may have intended for retirement savings to help cover education costs, home deposits, or generational investments for their heirs.

Annuity Requirements and Lack of Liquidity for Heirs

The default requirement to annuitise the Retirement Pot on death creates a liquidity mismatch, particularly when the benefit exceeds the de minimis threshold, which is currently R165,000. Heirs may inherit a “retirement income” instead of a capital asset, effectively locking up wealth that was intended to provide flexibility or seed intergenerational opportunity.

This annuity requirement means the following:

Estate liquidity must now be sourced from other assets, such as property, life insurance, or discretionary investments.
If the estate lacks sufficient liquidity, heirs may be forced to sell assets or incur debt to cover liabilities like estate duty, executor’s fees, or capital gains tax.
Family dynamics can become strained if trustees allocate the retirement benefit unevenly, or if annuitisation reduces the immediate financial benefit to dependants.

In light of these facts, advisors need to proactively address this shift, educating clients on what their beneficiaries will actually receive, and when, under the new rules.

Risk of Misalignment with Clients’ Legacy Intentions

One of the cornerstones of legacy planning is intention. Clients often have specific goals for their wealth: funding education for grandchildren, supporting a surviving spouse, donating to causes they care about, or equalising inheritances across children.

However, the Two-Pot System’s rigidity introduces a growing risk of misalignment between intention and reality:

Trustee discretion means that even nominated beneficiaries may not receive the benefit directly.
Forced annuitisation changes the structure and timing of how the benefit is received.

Complex family arrangements, including multiple spouses, dependants with special needs, or blended families, can complicate fund distribution further.

Without careful planning, clients may believe they have provided adequately for their loved ones, only for those loved ones to face delays, reduced benefits, or unforeseen tax burdens after their passing.

Increased Reliance on Estate Assets or Family Structures

As retirement funds become less accessible and more regulated in terms of posthumous distribution, clients will need to rely more heavily on non-retirement assets to support their legacy plans. This places pressure on the rest of the estate, which may not have been structured with liquidity or intergenerational transfer in mind.

In particular, advisors may see increased importance placed on the following:

Trust structures, which offer control, flexibility, and continuity across generations.
Life insurance policies, which can provide fast, tax-efficient liquidity outside the estate.
Offshore investments, where rules around accessibility and transferability may differ and offer planning advantages.

The shift also raises broader planning considerations: how do we balance retirement adequacy with legacy aspirations? How do we ensure the estate is not overly reliant on a single asset class or jurisdiction? And how do we communicate clearly with clients about these changes?

In short, the Two-Pot System introduces a more fragmented, regulated, and restricted approach to retirement fund access at death. While it serves important national savings objectives, it places legacy planning under pressure, requiring greater care, creativity, and communication from advisors.

In the next section, we will explore how to respond, and how strategic use of alternative structures can help clients still achieve their legacy goals, even in a more constrained environment.

4. Strategic Alternatives for Leaving a Legacy

Trusts: Reclaiming Control and Flexibility

In a post-Two-Pot landscape, where retirement funds offer limited flexibility and uncertain posthumous access, trusts are once again taking centre stage as a cornerstone of robust legacy planning. Whether inter vivos (living) or testamentary (created upon death), trusts offer a controlled, tax-conscious, and flexible way to preserve family wealth across generations.

1. The Role of Trusts in Multi-Generational Planning

Trusts allow clients to ring-fence assets for specific beneficiaries or purposes, such as education, housing, or business funding. For clients with young children, dependants with disabilities, or complex family arrangements, a well-structured trust can ensure that their legacy is protected, and not just preserved, but used in alignment with their intentions.

Where retirement funds may only provide an annuity or be subjected to trustee discretion, a trust allows the founder to set the rules. Distribution frequency, conditions, asset classes, and even succession within the trust itself can be tightly controlled. This level of detail is especially valuable in a system where predictability in death benefits is decreasing.

2. Asset Protection and Estate Efficiency

Assets held in trust are generally protected from the following:

Creditors, both of the founder and the beneficiaries.
Divorce claims, in the case of married beneficiaries.
Estate duty, assuming correct structuring and asset growth outside the estate.

This is a key differentiator from retirement savings, which may attract tax on death and cannot always be directed as the client wishes.

Furthermore, testamentary trusts are often used to hold assets for minor beneficiaries in a way that avoids guardianship complications or delays in distribution. They also reduce the administrative burden on the executor, who may otherwise have to manage complex or illiquid assets for young heirs.

3. Domestic vs Inter Vivos Trusts

While testamentary trusts are formed through a will and activated at death, inter vivos trusts are established during the client’s lifetime and allow the founder to:

Fund the trust over time (often through donations or loans).
Test the structure and trusteeship while alive.
Benefit from potential asset growth outside the estate, reducing estate duty exposure.

In a Two-Pot world where clients may be looking for alternatives to retirement funds for legacy creation, the inter vivos trust stands out as a powerful and flexible structure, especially for high-net-worth individuals or those with multigenerational goals.

Life Insurance: Creating Certainty and Liquidity

With the Two-Pot System limiting immediate access to retirement savings at death, life insurance has become an increasingly valuable tool for advisors looking to protect and preserve a client’s legacy. It offers something the retirement system no longer guarantees, certainty.

Whether used to create liquidity, equalise an estate, or fund specific legacy objectives, life cover is now a critical component of a well-rounded estate and legacy plan.

1. A Reliable Source of Liquidity

One of the most pressing challenges under the Two-Pot System is the potential lack of liquidity at death. Retirement fund benefits may be paid out as annuities, delayed due to trustee discretion, or allocated in a manner that doesn’t align with the deceased’s wishes. In contrast, a life insurance policy can achieve the following:

Pay out quickly (often within days of claim submission).
Bypass the estate if a beneficiary is nominated.
Provide immediate cash to cover estate duties, executor’s fees, debt settlements, or specific bequests.

This liquidity helps avoid the forced sale of assets or financial pressure on heirs during a difficult time.

2. Estate Equalisation and Intergenerational Fairness

In families where assets cannot be easily divided, such as a business or farm, life insurance offers a practical way to equalise inheritances. For example, one child may inherit the business, while others receive the life policy proceeds, ensuring fairness without needing to liquidate valuable generational assets.

It can also help balance distributions where certain retirement benefits or trusts are directed to specific beneficiaries, allowing for a more equitable and tax-efficient estate plan.

3. Tax and Estate Planning Advantages

The benefits of this approach are numerous and include the following:

Life policies with nominated beneficiaries do not attract executor’s fees or estate duty (provided they’re structured correctly).
Policies can be structured to pay into a trust, ensuring protection and control over how proceeds are used, particularly when beneficiaries are minors or financially vulnerable.
For high-net-worth individuals, multiple policies (including offshore policies) can be used strategically to diversify risk and reduce local tax exposure.

In the context of the Two-Pot System, where annuitisation and restricted access are now the norm, life insurance offers a clear, customisable, and efficient solution to legacy planning challenges. It ensures that clients can still leave behind meaningful financial support, regardless of retirement fund limitations.

Offshore Structures: Diversifying and Future-Proofing the Legacy Plan

For South African clients with global family footprints, foreign currency exposure, or larger estates, offshore structures are increasingly being used to complement local legacy planning. In the context of the Two-Pot Retirement System, which narrows access to domestic retirement funds, offshore investments and estate structures provide a powerful alternative for those seeking control, liquidity, and geographic diversification.

1. Diversification of Estate and Currency Risk

South Africa’s regulatory environment and tax framework can limit financial planning flexibility. Offshore investments provide the following:

Currency diversification, reducing exposure to rand depreciation.

Access to a wider range of assets, including global equities, funds, property, and alternative investments.
The ability to structure wealth outside of South African regulation, within legal and compliant frameworks.

This is especially important in the wake of the Two-Pot reforms, which restrict how and when local retirement funds can be accessed or passed on.

2. Bypassing Local Retirement Restrictions

Due to the fact the Two-Pot System applies only to South African retirement vehicles, offshore structures are not subject to the same annuitisation or access limitations. This creates planning opportunities as follows:

Offshore trusts or investment wrappers can be designed to allow flexible access by heirs, not bound by local retirement fund rules.
Assets held offshore may be outside the scope of Section 37C, meaning they can be bequeathed directly to chosen beneficiaries without trustee intervention.
Clients who foresee their heirs living abroad, or who have global estate planning goals, may benefit substantially from this flexibility.

3. Tax and Regulatory Considerations

Offshore planning must always be approached transparently and compliantly, taking into account the following:

Controlled Foreign Company (CFC) rules.
Exchange control regulations.
South African and foreign estate duty, donations tax, and capital gains tax.

Despite these considerations, the benefits of asset protection, flexible succession planning, and estate liquidity make offshore structures an attractive option, especially for clients with large estates or complex family dynamics.

Advisors should work alongside tax and legal specialists to ensure structures are appropriately tailored and compliant, while helping clients understand the long-term value of an offshore legacy strategy in complementing domestic retirement planning.

5. The Holistic Legacy Plan: Integrating Retirement and Estate Goals

As the Two-Pot Retirement System reshapes the retirement landscape, financial planners and estate advisors must shift from siloed advice to holistic, integrated planning. Legacy planning is no longer a separate conversation held at the end of life; it is now a continuous thread that must run through every stage of the financial planning journey.

The reform highlights the need for advisors to think beyond traditional retirement strategies and align retirement adequacy, estate liquidity, and legacy aspirations into a single, coherent plan.

Balancing Present Needs with Future Intentions

One of the greatest challenges introduced by the Two-Pot System is the tension between immediate access and long-term preservation. Clients must now navigate:

Short-term cash flow needs via the Savings Pot.
Long-term retirement sustainability through the Retirement Pot.
Posthumous wealth transfer goals that often fall outside the retirement fund framework altogether.

This demands a planning approach that weighs these competing objectives and finds the right combination of tools including retirement vehicles, discretionary investments, insurance, and trusts, to achieve both financial security and intergenerational wealth transfer.

The Advisor’s Role in Educating and Guiding Clients

The new system presents an opportunity for advisors to play a deeper, more strategic role in their clients’ lives. Clients are unlikely to be fully aware of the post-death implications of the Two-Pot System, including how benefits are distributed, taxed, and sometimes restricted.

Advisors must take the lead in the following:

Explaining the limitations of retirement funds as legacy tools.
Highlighting the importance of beneficiary nominations and Section 37C discretion.
Identifying gaps in liquidity and ensuring those are filled through tools like life cover or accessible investments.
Helping clients understand the value of trusts and offshore planning for long-term wealth preservation.

This is no longer just about selling financial products, it is about providing multi-generational financial stewardship.

Collaboration with Fiduciary and Tax Specialists

Given the technical complexity of modern estate planning, advisors should actively collaborate with:

Fiduciary professionals for will drafting, trust structuring, and estate administration.
Tax specialists to optimise estate duty, capital gains, and offshore compliance.
Legal experts where family dynamics or foreign jurisdictions are involved.

This cross-disciplinary approach ensures that all aspects of the legacy plan work harmoniously and remain legally and fiscally sound as the regulatory landscape evolves.

In today’s environment, legacy planning cannot be an afterthought. It must be a deliberate, informed, and future-focused part of every client engagement. Advisors who embrace this shift will not only safeguard their clients’ legacies, but they will also deepen trust and build enduring relationships that span generations.

6. The Role of the Advisor in a Two-Pot Future

The introduction of the Two-Pot Retirement System has ushered in a new era for financial and estate planning in South Africa; one where the role of the advisor must evolve from that of a product provider to a strategic partner in long-term wealth preservation.

More than ever, clients need guidance that goes beyond basic investment recommendations. They need advisors who understand the intersection of retirement, tax, estate, and legacy planning, and who can help them navigate a future where regulatory complexity is increasing, and traditional assumptions no longer hold true.

From Product Seller to Family Wealth Strategist

In a Two-Pot world, simply optimising investment returns is not enough. Advisors must now ask deeper, more future-focused questions including the following:

Will this client have enough retirement income, even with reduced access to savings?
What happens to their retirement benefits if they pass away before retirement?
How will liquidity be created for heirs when annuitised benefits cannot be accessed as lump sums?
Are legacy intentions documented, structured, and financially supported?

By embracing a family office mindset, even within a retail advisory context, professionals can deliver real value, advising not only on wealth accumulation but on wealth transfer, protection, and purpose.

Staying Informed and Technically Current

The regulatory environment is shifting, and the Two-Pot System may be just the beginning of broader retirement and estate reforms in South Africa. Advisors who wish to remain relevant must commit to ongoing professional development, including:

CPD-accredited training focused on retirement reforms, fiduciary planning, and estate structuring.
Technical updates on tax legislation, offshore compliance, and financial regulations.
Engaging with professional bodies and industry forums to stay ahead of changes.
Continuous learning is no longer optional; it is a professional imperative.

Ethical Guidance and Fiduciary Responsibility

Finally, the Two-Pot System underscores the importance of acting in a client’s best long-term interest. Advisors must balance urgent financial needs with retirement security, manage expectations around legacy outcomes, and ensure that all strategies are fully disclosed, legally compliant, and ethically sound.

This includes the following:

Avoiding over-reliance on retirement funds for estate purposes.
Disclosing the limits of fund nominations under Section 37C.
Encouraging robust will drafting, beneficiary planning, and contingency strategies.

In short, the modern advisor is not just a financial technician; they are a guardian of family legacies, a guide through life transitions, and a bridge between generations.

7. Conclusion

As South Africa transitions into the Two-Pot Retirement System era, financial advisors are being called to rethink, reframe, and retool their approach to long-term planning. The shift is not just technical; it is philosophical. It challenges long-held assumptions about the role of retirement savings in family wealth transfer and forces both clients and professionals to ask deeper questions about purpose, priorities, and planning.

At its core, legacy planning is about meaningful impact and ensuring that a lifetime of work, savings, and sacrifice culminates in something enduring. The Two-Pot System may be designed to preserve retirement security, but it also introduces structural limitations that make it harder to directly pass on wealth through retirement funds alone. Annuity requirements, restricted access, and trustee discretion introduce uncertainty at precisely the time families most need clarity.

However, these challenges are not roadblocks; they are reminders. They remind us that legacy planning must be intentional, and that wealth transfer should never rely on a single product or fund. Retirement vehicles, trusts, insurance, offshore structures, and discretionary investments must now work together to build a cohesive estate and legacy plan.

This is where the modern advisor comes in, not merely to calculate numbers or select funds, but to lead strategic, values-driven conversations with clients about the kind of legacy they wish to leave. It is about moving from transactional to transformational advice. It is about understanding that wealth is not just about what has been accumulated, but what’s preserved, protected, and passed on.

As advisors, you are uniquely placed to guide families through this transition and to help them navigate complexity with clarity, and to structure their affairs in a way that honours their intentions, secures their loved ones, and maximises the impact of their life’s work.

At the heart of every financial plan is a family with hopes, responsibilities, and dreams for the future. The Two-Pot System may have changed the mechanics, but the mission remains the same: to protect what matters most. Advisors who lead with empathy and expertise will not only preserve wealth, they will help families preserve their legacy.

Earn CPD and Strengthen Your Legacy Expertise

To support you on this journey, we’ve created a CPD-accredited quiz focused on the implications of the Two-Pot System for legacy and estate planning. This is more than a compliance exercise, it is a chance to deepen your understanding and sharpen the tools you bring to every client conversation: