What South Africans are doing with the money they withdraw from the two-pot system

South Africans are largely using their withdrawals from the new two-pot retirement system to settle short-term debt and cover expenses related to their homes or cars. 

This is feedback from the chief commercial officer at Discovery Corporate and Employee Benefits, Guy Chennells, who outlined the results of a survey of individuals who submitted withdrawal requests. 

There has been much speculation about what South Africans would do if they had the opportunity to withdraw a portion of their retirement savings prematurely. 

Many thought it would be used to fund ‘revenge spending’, where consumers who have cut back on buying clothes, furniture and other discretionary items would splash their cash at retailers. 

Others thought it would be used to pay back debt or fund a once-off large expense, such as a downpayment on a house. 

One thing is for certain: The sheer volume of withdrawals shows that South Africans are under immense financial pressure, with hundreds of thousands taking the opportunity to earn some extra cash. 

According to Momentum’s latest annual results, the insurer has handled over 150,000 withdrawal claims with a value of R2.5 billion.

Other asset managers with large exposure to pensions and retirement funds have also seen substantial amounts withdrawn in the first three weeks of the two-pot system.

Old Mutual CEO Iain Williamson said the company received 125,000 withdrawal requests, totalling R1.7 billion, during the ten days its application system has been open.

Alexforbes said it also experienced more than R1.5 billion in withdrawals within the first two weeks of the new system’s implementation. 

Chennells explained that withdrawal rates during September should be understood within the context that many people did not qualify for a withdrawal for two key reasons –

• If there was less than R2,000 in their savings account from the seeding, claimants were not allowed to withdraw. 
• If claimants are in the over-55 age category, they must opt into the two-pot regime before 1 September 2025 for their seeding to occur.

The data revealed that claimants’ eligibility to make a Two-Pot withdrawal was different by age and income, Chennells said. 

Where the money is going

Chennells said its survey of clients who submitted withdrawal claims shows that many are using the money to pay off short-term debt and resolve home or car expenses. 

This data is from Discovery’s Corporate and Employee Benefits pension and provident fund business, which represents over 3,000 employer groups and just over one million employees. 

The company asked claimants why they had chosen to withdraw from their accumulated retirement savings as part of the new two-pot retirement system. 

“Responses showed that the main reason our claimants withdrew from their savings was to resolve home or car expenses (24%). This was closely followed by a need to pay off short-term debt (21%),” he said.

“We found it surprising that a big group of claimants (20%) was using the extra money for education, presumably in the majority of cases for children’s school fees, as well as for day-to-day expenses (11%).”

This is a clear indication of the cost-of-living pressures that many South Africans face. 

The two-pot retirement system was implemented mainly to help South Africans stay invested in their retirement funds until they retire. 

The system allows individuals to access one-third of their retirement savings for short-term needs while preventing them from fully withdrawing from their retirement fund when changing jobs.

Many of the respondents who selected ‘Other’ as a reason for withdrawing said they would use the extra cash for home improvements and renovations. 

“This isn’t really recommended as a good use of Two-Pot savings because it does not truly classify as ‘emergency spending’,” Chennells said. 

“It’s still understandable, though, because South Africans who want to improve their lives are simply unable to create discretionary spending from their regular income at the moment.”

Only 1% of claimants selected ‘Travel’ as a reason for withdrawing from their two-pot savings.