Two-pot system: To withdraw or not?

As South Africa’s two-pot retirement system approaches its second anniversary in September, much of the public conversation still focuses on how much money members have withdrawn.

Nic Whittles, senior employee benefits consultant at BDO Wealth, said that looking at how much money has been withdrawn risks overlooking one of the system’s most important long-term benefits: a significant portion of retirement savings is now being preserved throughout a member’s working life.

Under the system, two-thirds of new contributions go to a retirement component that must remain invested until retirement, while one-third goes to a savings component that can be accessed under certain conditions. However, withdrawing from the two-pot system also has some negative effects.

Pros of the two-pot system

Whittles said the previous system placed almost all responsibility for preservation on the individual.

“Every time someone changed jobs, they had to decide whether to preserve their retirement savings or take the money. Many people cashed in and effectively started their retirement savings journey again.”

According to Whittles, this behaviour has been one of the biggest contributors to poor retirement outcomes. The two-pot system seeks to address this by preserving a substantial portion of retirement savings while still providing access to funds when genuine financial needs arise.

Cons of the two-pot system

Some negative implications of withdrawing from the two-pot system include higher tax rates. Withdrawals are not taxed at favourable lump-sum retirement rates; instead, they are taxed at your normal marginal income tax rate, which can significantly reduce your payout.

Another negative implication includes loss of compound growth. Removing money stops it from generating future investment returns, meaning regular withdrawals can leave you with hundreds of thousands or even millions of rands less by the time you retire.

There may also be administrative fees. Retirement funds and administrators typically charge fees for processing early withdrawal requests, further reducing the net cash you receive.

Do you withdraw?

Tebello Mokhotso told The Citizen he has previously been tempted to withdraw from the two-pot system; however, the bad outweighs the good, so he never went through with it.

“I have wanted to withdraw from my two-pot when I urgently needed money, but I look at what this means in the long run. First, the South African Revenue Service (Sars) is going to deduct tax, meaning I am going to get less money than I requested. Secondly, withdrawing meant less or no tax refunds, so I just opted not to withdraw.”

Koloti Mokoena told The Citizen he once withdrew from his two-pot; however, he was not aware of the negative implications.

“I withdrew the maximum limit of R30 000 in 2025, but I only received around R18 000. I was not aware that Sars was going to take so much away. Then when it was time for me to file for my tax returns, I received no tax refunds. That was the last time I withdrew.”

Benefits

“The savings pot provides an important safety net, but members need to understand the long-term cost of withdrawing whenever they can,” said Whittles.

He believes one of the greatest benefits of the two-pot system is that it encourages members to stay invested and benefit from compound growth over time.

“When money remains invested over 20, 30 or 40 years, compound growth can have a dramatic impact on retirement outcomes. Every withdrawal reduces not only the amount invested, but also the future growth that money could have generated.”

Illustrative example based on a member earning R35 000 per month and contributing 10% of salary to a retirement fund. Actual outcomes will vary depending on investment returns, salary increases, fees, taxes and withdrawal behaviour.

Scenario	After 10 years	After 20 years
Remains invested and preserves retirement savings	±R717 000	±R2.58 million
Withdraws R21,000 from the savings pot every two years	±R585 000	±R2.1 million
Difference	R132 000 less	R481 000 less

Source: Illustrative calculations based on assumptions discussed by Nic Whittles, senior employee benefits consultant at BDO Wealth.

Impact of preservation

The illustration highlights the impact of preservation. Whittles said a member who regularly accesses their savings pot could accumulate around half a million rand less over a 20-year period than someone who leaves those funds invested.

While the savings pot serves an important purpose during times of genuine need, every withdrawal comes with an opportunity cost: lost future growth.

“Members need support when they are making these decisions,” said Whittles. “That conversation should consider their immediate needs, the tax implications and the long-term impact on retirement savings. That’s where employers, benefit consultants, and financial planners can make a meaningful difference.”