Money flooding out of South African retirement accounts

South African financial services giant Alexforbes reported a sharp increase in members accessing their savings pot in the first week of the new tax year under South Africa’s two-pot retirement system.

The firm announced on Monday, 9 March, that it received over 140,000 claims during the first week of March, with around 84,000 already paid. 

Alexforbes’ head of solutions enhancement, Vickie Lange, said the first claim was submitted at 00:01 on 1 March.

“The early response to the new tax year highlights that many members require prompt access to their savings,” Lange said. 

“It also demonstrates the importance of reliable digital systems that can process high volumes of claims quickly and accurately.”

The government introduced the two-pot retirement in September 2024, with the aim of improving retirement outcomes while allowing South Africans to withdraw some of their savings in times of need.

Under this system, South Africa’s retirement savings are divided into two “pots” – a savings pot and a retirement pot.

South Africans can withdraw up to a third of their savings each year, while the other two-thirds of their savings are kept in the retirement pot.

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

Prior to this system, individuals who changed jobs or resigned would have to completely withdraw from their employer-administered retirement savings, breaking the compounding process and resulting in excessive fees.

The two-pot system was introduced to solve this problem, expected to result in a greater share of retirement savings being invested until maturity, expanding the pool of investable assets in South Africa.

When the new system was introduced, billions in retirement savings were withdrawn from asset managers around the country in just the first few months.

In early December 2024, Alexforbes reported that it had already received withdrawal claims from clients for R6.5 billion from their retirement funds.

By that point, the firm had paid out R4.6 billion in claims to 340,000 of its members.

Withdrawal warning

Lange said the first week of the 2026 tax year saw thousands of withdrawal claims, underscoring the immediate demand for access to savings.

The firm has prepared for this influx of withdrawal claims, having strengthened its systems, updated member information, and expanded its digital tools to support the expected demand.

“The organisation has also increased operational capacity to manage higher claim volumes and continues to monitor processing times to ensure accuracy and compliance,” it said. 

Lange said it was important to remember that savings pot withdrawals are subject to tax and will reduce their retirement savings. 

Prior to the introduction of the two-pot system, various local asset managers issued similar warnings to ensure South Africans were educated about the risks associated with early withdrawals.

One major risk is that withdrawing from the two-pot system before retirement incurs severe tax consequences, as withdrawals are taxed at an individual’s marginal tax rate.

Therefore, many experts warned South Africans not to withdraw unless completely necessary. 

An Alexforbes survey launched a few months after the two-pot system was introduced 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.

However, the firm also found that almost 60% of the claims it received were from members with fund credits under R250,000, and 94% were from those earning salaries below R550,000.

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

The same survey revealed that the vast majority (80%) of claimants in the first few months used their withdrawals for debt repayments and essential living expenses.