After a lot of talk and debate around its merits and risks, the two-pot retirement system came into effect a year ago. Here’s a look at how South Africans have responded and how it’s impacting clients and the industry. If two-pot fatigue has you hoarding headlines in an ever-growing to-be-read folder, consider this your executive summary.
When the two-pot retirement system was announced, it sparked a lot of debate. On one side of the argument: concerns that South Africans would steal from their future selves, jeopardising their futures. On the other: concerns about South Africans’ current, pre-retirement financial situations. Both sides are valid.
Earlier this year, Moneyweb reported that only 6% of South Africans can afford to retire comfortably. They defined “comfortably” as receiving 75% of their final salary cheque during retirement. With 94% of South Africans already not saving up enough capital to retire, for many, the concept of a system that allowed withdrawals from retirement savings before reaching retirement age raised a red flag.
Meanwhile, in May this year BusinessTech reported that South Africans earning over R35 000 a month had hit record levels of debt, and that purchasing power had more than halved in the last decade. The article was based on the Q1 2025 Debt Index from DebtBusters. The Q2 report, released in August, found that “95% of people who applied for debt counselling during the quarter had a personal loan. A further 54% had one-month (payday) loans.”
It pointed to various factors impacting South Africans to the point where they’re seeking out loans that come at a cost of 23% interest per annum. These include:
• Electricity tariffs that have more than doubled since 2016
• A petrol price that has increased by 75% in the same period
• Compound impact of inflation over the period reaching 51%
In this pressure-cooker environment, a pot of savings suddenly became available to financially burdened South Africans. Are they succumbing to temptation and dipping into it? Or are they leaving the pot of gold at the end of the rainbow? And is accessing retirement savings early ever a good strategy?
How many accessed it?
Retirement fund members were quick to access their savings pot when the legislation came into effect in September 2024. On 11 October 2024 (less than six weeks after the two-pot system was implemented), the South African Revenue Service (SARS) announced that it had received more than 1.2 million applications for tax directives for withdrawals from the savings withdrawal benefit of the two-pot system. More than 1.1 million of these were approved, with a total of R21.4 billion being paid out over the period. By the end of January, the amount paid had risen to R43 billion. And in June, Moneyweb reported that withdrawals had reached R57 billion.
Speaking at the Institute of Retirement Funds Africa (IFRA) annual conference at the end of August, Guy Chennells, Chief Commercial Officer at Discovery Corporate & Employee Benefits, shared statistics from Discovery that showed 39% of members eligible to withdraw from their savings benefit had made withdrawals. These were predominantly members in the lower-income bracket – 43% of those who made withdrawals earned under R125 000 per year, and only 7% earned over R1 million per year. He said Discovery had seen a spike in withdrawals in September 2024 when the system came into effect, followed by a second spike in March this year with the start of the new tax year – predominantly from second-time claimants.
Meanwhile, data released by the FSCA in February revealed that most withdrawals were made by members who earned R180 000 to R239 988 and R60 000 to R119 988 per year. The FSCA’s data also revealed fewer withdrawals were made by those earning above R600 000 per year.
Discovery’s data showed that withdrawals were most common among younger members, with millennials making up 30% of the number of withdrawals and Gen Zs following at 27%.
This corresponded with FSCA data that showed millennials aged 31–41 made the most withdrawals. However, the second highest number of withdrawals by age group was among members aged 41–51.
What did they use the money for?
Contrary to fears that South Africans would access their savings pot for reckless spending, the data seems to indicate that the reasons behind withdrawals are far from frivolous.
A study by the Personal Finance Research Division of the Bureau of Market Research (BMR) analysed data from VeriCred Credit Bureau (VCCB), SARS, the South African Reserve Bank, and Statistics South Africa to see what South Africans are spending their savings pot withdrawals on. Published at the beginning of March, it looked at data from 1 September 2024 to 31 January 2025.
They found that many claimants appeared to use the money to settle outstanding debts, as overdue balances for store accounts decreased in the time period. Overdue cell phone contracts and student loans also decreased initially, but then increased again, leading the researchers to deduce that the withdrawals may have been used for one-time payments as opposed to servicing long-term debt.
At the beginning of March, Old Mutual surveyed members who had made withdrawals from their savings pots in the 2024/25 financial year. They received 35 278 responses. The vast majority of claimants (45%) indicated they had used their withdrawal to pay off debt (a reason echoed by data from the likes of Sanlam, Momentum, and AlexForbes, according to the report). This was followed by school fees (18%), home/bond (11%), and groceries (6%).
Discovery data revealed similarly pragmatic reasons for withdrawals, with three-quarters of withdrawals going towards education, car and home expenses, short-term debt, or day-to-day living costs. In fact, 25% of members who accessed their savings pot used the money to pay for education. Paying off short-term debt also featured prominently.
Analysing banking data, the BMR study found no significant increase in savings, which suggested that claimants spent the funds immediately, rather than holding onto them as a source of liquidity. There was an increase in general retail spending in September and October 2024 on essential goods. However, spending on clothing and furniture matched seasonal spending patterns and any increases weren’t significant enough to be linked to the savings pot withdrawals, suggesting items like these were not where the money was going.
On the other hand, used car registrations had a notable increase in September and October 2024, reaching record levels. Researchers noted that lower interest rates in September and November may have played a role in this, but nonetheless believed the timing suggests many claimants used their withdrawals to fund deposits for vehicle financing.
In Old Mutual’s survey, 2% of respondents said they were using their withdrawal for a car.
Those who were accessing their savings pot for lifestyle and leisure activities were mostly younger members, according to the Discovery data. This age group still has many years of compounding ahead of them, with two-thirds of their contributions remaining untouched.
What have we learnt?
Looking back at a year of the two-pot system, trends and learnings start to emerge.
Most members have chosen to bank: News headlines have focused on those who chose to withdraw, often using emotive language like “blowing their two-pot retirement payday”. But in his presentation at the IFRA conference, Chennells pointed out that the less popular positive story is that the majority of members (60% in Discovery’s case) have so far elected not to access their savings pot.
Most claimants will withdraw again: In the Old Mutual survey, 80% of respondents indicated they were likely or very likely to withdraw again in future; 13% indicated they were unlikely to do so. Speaking at IFRA, Michelle Acton, executive of retirement reform at Old Mutual, said withdrawal statistics are showing three member profiles: Preservers have the discipline to preserve savings until retirement, Contingency withdrawers will access their savings pot only in case of emergency, and Serial claimers are likely to empty their savings pot each year.
Tax implications: Of the 13% of respondents to the Old Mutual survey who said they were unlikely to withdraw again, 43% cited high taxes as the main reason. In September this year, IOL reported that many members who chose to access their savings pot were surprised when they were hit with high taxes and when outstanding SARS debt was seized from the withdrawal. According to the South African Reserve Bank (SARB), SARS initially expected to collect R5 billion from savings pot withdrawals, but by March 2025, withdrawals had yielded R12.9 billion in taxes.
Retirement funds impacted: SARB data showed that while the two-pot system contributed to higher pension withdrawals, it also hiked administrative costs for retirement funds, negatively impacting the net income of these funds. It dropped from R31.8 billion in Q2 of 2024 to R16 billion in Q3 and R9 billion in Q4 of 2024
It may have long-term benefits: Chennells believes the two-pot system has the potential to break a longstanding self-sabotaging pattern where members would withdraw their entire retirement savings every time they changed jobs, forcing them to start from scratch each time and losing the benefit of compounding. If this proves to be the case, it could benefit younger members especially in the long term. He added that, over 40 years, this change in behaviour could lead to retirement fund assets increasing by three times as much as they would have under the old system – and possibly more if 60% of fund members choose not to withdraw.
South Africans need financial advice
What has become abundantly clear over this first year of the two-pot retirement system is that South Africans are in desperate need of financial advice.
For starters, those who intend to withdraw from their savings pot either habitually or contingently (per Old Mutual’s member profiles) may need help creating different strategies for their savings and retirement pots respectively.
Additionally, those who intend to withdraw need to be educated on the tax implications of doing so. And they need guidance on how best to use the funds they’ve accessed to make decisions that not only alleviate short-term financial burdens but also set them up for a better financial position in future.
Financial advice can also help clients find other products and strategies that may put them in a position where they don’t have to withdraw from their savings pot after all.