Personal Finance Series: what South Africans are using the Two-Pot System payouts for

Since the launch of the Two-Pot retirement system on September 1, 2024, South Africans have gained a new way to balance long-term retirement planning with short-term financial flexibility. But while the system was designed to improve retirement outcomes, early data show that many are using it to meet immediate financial needs, often at the expense of their future retirement security.

The Three Pots explained

As Brett Ladouce, pension funds lawyer and author of Pensions for Palookas, explained: “It’s not free money.”

The system now consists of three distinct components:

• Vested pot: All savings accumulated before 1 September 2024. Members can still access this when they retire or change jobs.
• Savings pot: Receives one-third of new contributions. Members can withdraw from this pot once per year, provided the amount is above R2,000.
• Retirement pot: Receives two-thirds of new contributions. This pot is locked until retirement and must be used to purchase a living annuity.

Ladouce cautioned that withdrawals from the savings pot reduce the total available for retirement, and reminded members that the retirement pot is meant to provide a monthly income once they stop working. “Remember, the purpose of saving for retirement is to give you that annuity income that replaces income for you when you can no longer work,” he said.

What people are using it for

Reports show that withdrawals are being used primarily to manage debt and household expenses.

• ASI Financials (2026): Over R20 billion has been withdrawn since the system launched. Of the claims submitted, 5% were first-time users, 33% second-time, and 62% third-time withdrawals. Most claimants requested 100% of their available savings pot, suggesting that once members start, they often continue annually.
• Momentum Corporate report (2025): Approximately R60 billion was withdrawn in the first year. The majority of withdrawals were used for debt repayments, medical emergencies, school fees, and funeral costs.
• Old Mutual survey (2026): Found that 79% of members used withdrawals to settle debt, with many indicating they would do so again in the future.

This data highlights that, while the savings pot was intended for emergencies, many households are relying on it to cope with ongoing financial pressures.

Tax and fees: the hidden costs

Withdrawals from the savings pot are taxed at the member’s marginal rate, which can significantly reduce the amount received. As Vickie Lange, head of best practice at Alexforbes, explained: “Waiting for retirement means that the retirement tax table applies and the first R550,000 is tax free.”

Lange also noted that fees vary by administrator and that members should ensure these are fair and transparent. “There is no right or wrong way for the fees to apply. What’s important is that the fee is fair, transparent, equitable, and ensures that quality administration services are provided on a safe and sustainable basis,” she said.

In cases of divorce or legal judgments, access to savings may be restricted to ensure funds are available to meet court rulings.

When it makes sense to withdraw

Ladouce advised that the savings pot should be used only for emergencies, such as an unforeseen hospital stay. However, he acknowledged that it may be wise to use it to pay off high-interest debt, provided members then redirect those monthly repayments into retirement savings.

Long-term impact

Lange estimated that the new system could improve retirement outcomes by 2 to 2.5 times for new members, but only if they preserve their retirement pot. “This change is important because the main reason for members not being able to afford to retire is that only one in 10 members preserve their retirement savings when changing jobs,” she says.

PERSONAL FINANCE