Warning for SA two-pot retirement system, repeat withdrawals soar

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As South Africans adjust to the newly implemented two-pot retirement system, early warning signs suggest that the intended goal of safeguarding retirement savings may be undermined by a surge in repeat withdrawals.

Data from retirement fund administrators reveals that during the first two months of the 2025 tax year -March and April – roughly 75% of withdrawal applications were repeat claims, highlighting a troubling pattern of short-term cash access that could jeopardise future financial security.

The two-pot system, introduced on 1 September 2024, was designed to balance liquidity with preservation. It allows fund members to access one-third of their contributions through a savings component, while two-thirds remain locked in a retirement component until formal retirement.

Under current rules, a member can withdraw from their savings pot once per tax year, provided the pot holds at least R2 000.

The initial seeding of this savings component came from 10% of a member’s pre-existing retirement savings, capped at R30 000.

Concerning depletion of funds

According to Natasha Huggett-Henchie, consulting actuary and a member of the Actuarial Society of South Africa (ASSA) Retirement Matters Committee, the average withdrawal during the initial access period in late 2024 was R20 000, with subsequent withdrawals falling to R6 000 on average.

This decline reflects a concerning depletion of funds. Huggett-Henchie noted that members who emptied their pots shortly after implementation will now only have modest amounts – perhaps just R6 000 or slightly more, depending on monthly contributions and investment growth – available for withdrawal in the new tax year.

“If you emptied your savings pot in September last year and continued contributing R3 000 per month, you’d have around R6 000 available now, plus any investment growth,” she explained.

Further compounding the issue are tax implications.

Meant for retirement

Withdrawals are taxed by the South African Revenue Service (SARS) and may push individuals into higher tax brackets, making cashing out even more costly.

Despite the financial accessibility offered by the two-pot system, Huggett-Henchie warned that it was never intended as a revolving credit facility.

“Every withdrawal should be carefully considered, as it diminishes the savings meant for your retirement,” she cautioned.

A deeper concern, she added, is that informal lenders may be capitalising on the withdrawals.

With no significant increase in loan repayments to banks or consumer spending reported by retailers, suspicions have grown that cash-strapped individuals may be turning to loan sharks, using withdrawals to service high-interest debt.

Experts have begun calling for tighter oversight and improved financial education to prevent abuse of the system, which was initially designed to offer limited access to cash in emergencies – not to encourage a cycle of dependency that leaves retirement savings dangerously eroded.