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South African pension fund members’ withdrawals under the two-pot retirement system show how desperate they are for extra money.
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Pension fund members could withdraw from the savings pot of their funds under the two-pot retirement system for the second time since the beginning of the tax year on 1 March, and 75% of the withdrawals are from members who also withdrew in the previous financial year.
The two-pot retirement system, implemented on 1 September last year, allows pension fund members to dip into their savings pot once in a tax year, provided they have more than R2 000 plus the relevant fees saved in their savings pot.
Natasha Huggett-Henchie, consulting actuary and member of the Actuarial Society of South Africa’s Retirement Matters Committee, says the new system was designed to force retirement fund members to preserve at least two-thirds of their retirement benefits in one pot that cannot be accessed before retirement, while allowing access to the remaining third in the savings pot when they need money for emergencies.
“To kick off the two-pot system, the savings pots of qualifying retirement fund members were seeded with 10% of their retirement savings up to R30 000 on 1 September 2024. Members could withdraw what was in their savings pots, as long as it was R2 000 or more after fees.”
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She reveals that many of the retirement fund members who requested withdrawals from their savings pots in March and April 2025, the first two months of the new tax year, were dipping into their savings pots for a second time.
Retirement fund administrators represented on the committee reported that around 75% of the applications they received in the current tax year were repeat claims.
“While the average withdrawal was R20 000 in the first round of two-pot retirement system withdrawals, the average withdrawal for applications submitted after 1 March for the current tax year is around R6 000. We are finding that retirement members are taking all they can as soon as they can.”
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Huggett-Henchie points out that retirement fund members who made their second withdrawal early in this tax year will have to wait until March 2026 before they can dip into their savings again.
“If you emptied your savings pot in September last year and continued to contribute to a retirement fund, you would have started the new tax year on 1 March 2025 with one-third of your monthly retirement fund contributions accumulated over six months in your savings pot.
If, for example, you contribute R3 000 a month to your retirement fund, R1 000 goes to your savings pot. That means you would have been able to access another R6 000 plus any investment growth at the start of the new tax year.”
She explains that retirement fund members who did not touch the money in their new savings pots when they became available last September can withdraw the entire amount, even if it is more than R30 000.
“For 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.”
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However, she warns pension fund members to first check how much tax they will pay before they decide to withdraw. “Withdrawals under the two-pot retirement system are taxed by the South African Revenue Service (Sars) either at members’ current marginal tax rate or at a higher rate if the withdrawal pushes you into a higher tax bracket. In addition, you will most likely have to pay an administrative fee as well.
Therefore, Huggett-Henchie says, members must not expect to get the full amount they applied for.
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She also reminds members to think about withdrawing first. “Just because you can, it does not mean you should. Every withdrawal should be carefully considered, because you are effectively reducing the savings meant to provide for you when you are too old to work and earn a living.
“Therefore, 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 a significant amount.”
Huggett-Henchie says she suspects that one of the biggest beneficiaries of the withdrawals under the two-pot retirement system may have been loan sharks. “It seems banks have not seen a big paydown of loans and retailers have not reported a massive uptick in sales.”
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However, she has encountered one retirement fund member using her savings pot money to avoid debt. “A member of one of the funds we administer explained that 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 for a loan. This way, the money is still there for next year’s school fees, and she is no longer in debt.”
Huggett-Henchie says the next challenge facing the retirement fund industry is employees resigning or being retrenched with small amounts accumulated in their retirement pots.
“These amounts are often too small to move into a preservation fund or retirement annuity because they do not meet the minimum investment requirements, but in terms of the new two-pot rules, the fund member can also not choose to take the retirement benefit in cash.
“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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