South Africans increasingly access retirement savings amid financial strain

South Africans are rapidly withdrawing funds from their savings pots under the new two-pot retirement system, with many dipping into their savings for a second time in just a few months, according to Natasha Huggett-Henchie, consulting actuary and member of the Actuarial Society of South Africa (ASSA) Retirement Matters Committee.

Retirement fund administrators have reported that 75% of applications for withdrawals in the current tax year are repeat claims, says Huggett-Henchie.

While the average withdrawal amount in the first round of two-pot withdrawals was R20,000, this year’s applications have dropped to an average of R6,000, says Huggett-Henchie.

"We are finding that retirement members are taking all they can as soon as they can, she says.

Introduced on September 1, 2024, the two-pot retirement system was designed to help South Africans access a portion of their retirement savings for emergencies while preserving two-thirds of their pension. The system allows retirement fund members one withdrawal per tax year, as long as their savings pot contains at least R2,000 plus relevant fees.

To start the system, qualifying fund members had 10% of their total retirement savings (up to R30,000) transferred into their savings pots on September 1, 2024. Since then, many have emptied their accounts, leaving them without savings until they can make another withdrawal in March 2026, according to Huggett-Henchie.

She says that for those who emptied their savings pot in September last year but continued contributing, their pot would now hold one-third of their monthly contributions over the past six months. For someone contributing R3,000 per month, this means their savings pot would contain R6,000 plus any investment growth, which could be accessed at the start of the new tax year in March 2025.

Interestingly,  Huggett-Henchie says that retirement fund members who did not touch their savings pot last September can withdraw the entire amount, even if it exceeds R30,000.

"Using the earlier example, if your savings pot was seeded with R30,000 last year and has grown to R36,000, you are allowed to withdraw the full amount. Just remember to check on the tax impact before you decide to withdraw."

While the new system provides flexibility, Huggett-Henchie cautions that fund members should carefully consider whether they should withdraw just because they can.

“Every time you make a withdrawal now to fund something other than an emergency, you must understand that you are reducing your future emergency fund. If you empty your savings pot every year, you will effectively have reduced your retirement savings by one-third, which is significant," she says.

One of the most unexpected beneficiaries of these withdrawals may be loan sharks, she speculates. "It seems banks have not seen a big paydown of loans, and retailers have not reported a massive uptick in sales."

However, Huggett-Henchie acknowledges that some retirement fund members are using their savings pots wisely, with one individual opting to borrow money from their savings pot instead of taking out a loan for school fees.

“Every year, she would have to take out a loan to fund her children’s school fees. In January this year, she decided to borrow the money from her savings pot and repay it every month, just as she would have had she taken a loan. This way, the money is still there for next year’s school fees, and she is no longer in debt," she says.

Looking ahead, Huggett-Henchie says the next major challenge facing the retirement funds industry is dealing with small accumulated amounts in retirement pots when employees resign or are retrenched. Many of these amounts are too small to move into a preservation fund or retirement annuity, but under two-pot rules, fund members cannot take the money in cash either.

“Until this is addressed in the next phase of the two-pot regulations, fund administrators will have to find cost-effective ways of dealing with these ‘problem pots’,” she says.

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