South Africa’s R7 billion two-pot bonanza

Since the two-pot system came into effect in September last year, South Africans have requested to withdraw around R7 billion from their retirement funds.

Alexforbes recently revealed key insights and trends from the implementation of the two-pot retirement system.

This system – introduced on 1 September 2024 – marked a significant change in South Africa’s retirement fund sector. 

In short, the system allowed South Africans to withdraw a portion of their retirement savings every year before retirement while another portion is kept in a vested “pot”.

Therefore, under this new system, retirement contributions are split into two “pots” – a savings component and a retirement component.

The savings “pot” is accessible before retirement, and it allows individuals to withdraw a part of their savings under certain conditions, such as emergencies. 

The amount withdrawn is taxed, ensuring people use the funds responsibly.

The retirement “pot” remains inaccessible until retirement age, ensuring that a significant portion of savings is preserved for retirement income.

Alexforbes explained that the system aims to enhance the financial well-being of retirement fund members by balancing long-term savings with short-term financial needs.

To understand the impact this new system has had, Alexforbes undertook a comprehensive survey of over 8,200 responses and data analysis covering over one million members.

Firstly, the firm found that the new system has improved projections for retirement outcomes for new members by 2 to 2.5 times.

This is because the two-pot system allows access to a portion of savings for financial needs while preserving the remainder for retirement.

The firm further found that the uptake of the new two-pot system was very high. 

The system came into effect on 1 September, and by 30 November 2024, more than 348,000 claims had been submitted, amounting to over R6.5 billion. 

Approximately 65% of these claims were submitted in September alone. 

Two months later, by 30 January 2025, the number of claims had risen to more than 370,000, with a total value exceeding R7 billion. 

“The high volume of claims highlights the immediate financial needs of members and reinforces the importance of effective digital platforms and administrative capabilities,” the firm said.

Around 76% of claims were from members aged 31 to 51, which Alexforbes said highlights the significant financial responsibilities in this age group.

Worryingly, almost 60% of claims were from members with fund credits under R250,000, and 94% were from those earning salaries below R550,000.

The firm said this demonstrates that financial needs often outweigh the benefits of preserving savings for retirement.

Withdrawing from the two-pot system before retirement comes with severe tax implications, as withdrawals are taxed at an individual’s marginal tax rate.

Therefore, many experts warned South Africans not to withdraw unless completely necessary. Despite high withdrawal rates, these awareness campaigns seemed to have accomplished their task.

Alexforbes found that  96% of respondents understood the long-term impact of withdrawals and tax implications. 

In addition, 86% of claimants were satisfied with their decision, indicating that the system is meeting the expectations of most members. 

The firm was also able to find out what South Africans spent their savings on.

Around 80% of claimants used their withdrawals for debt repayment and essential living expenses. Of these, 50% repaid debt, while 30% covered essential costs. 

Other uses included major purchases (13%), financial investments, home improvements, medical bills, education and vehicle maintenance (7%). 

“These findings indicate that members are prioritising financial stability when accessing their savings,” the firm said. 

“Given this trend, debt solutions and rewards programmes could provide additional value to members, helping them better manage their finances while preserving long-term savings.”

Alexforbes revealed that 47% of members plan to claim in the future, with 34% of previous claimants intending to claim again. 

Among those who did not make an initial claim, 33% do not plan to claim, while 13% are considering it.

“The two-pot system has proven to be a crucial financial resource, enabling members to manage financial challenges while preserving most of their retirement savings,” the firm said.

“Alexforbes remains committed to supporting members through innovative solutions and exceptional services.”