South Africa can win big from two-pot retirement system

The implementation of the two-pot retirement system is poised to benefit South Africa significantly in the coming decades, as it preserves a greater share of savings until maturity. 

This will boost the country’s savings rate and the pool of funds available for investment, thereby enhancing economic growth. 

Furthermore, the system should translate into better financial outcomes for individuals in retirement, reducing reliance on the state and family members. This will free up further capital to be saved or spent. 

This is feedback from FNB senior economist Koketso Mano, who outlined some of the benefits the two-pot system can have on South Africa’s economy at the launch of the bank’s annual Retirement Insights Survey. 

The survey analyses the behaviour of South Africans in saving for retirement, how they plan for later years, and how prepared they are for life after work.

A key part of the analysis for 2025 was the impact of implementing the two-pot retirement system on the financial behaviour of South Africans. 

It showed that many are aware of the system and have withdrawn from their savings pot to fund everyday expenses or pay down debt. 

Some have also used the funds for holidays, education, unforeseen expenses, or simply moved savings to a different investment account. 

Some economists have expressed concern about the billions of withdrawals, warning that they would undermine the country’s already-low savings rate and fixed capital formation. 

However, Mano explained that the system should translate into enhanced savings, which can be used to invest in productive areas of the economy. 

While there will be billions of withdrawals every year, this should be outweighed by the increased amount locked in until maturity. 

Furthermore, the implementation of the two-pot system has led to increased awareness about saving for retirement, as evidenced by FNB’s data, which shows an increase in interaction with retirement savings products. 

This is crucial for increasing participation from ordinary South Africans in local investments and the economy, as they stand to benefit from the wealth created by local companies. 

In particular, the increased retirement savings translate into more capital being available for investment in fixed-income projects, given the nature of retirement savings being locked in until maturity. 

This type of investment is crucial for faster economic growth in South Africa, which will lead to higher incomes and increased capital that can be saved or spent. 

As a result, the two-pot system has the potential to create a positive flywheel that will drive faster economic growth and better outcomes for households. 

Asset managers and individuals stand to benefit

FNB also expects asset managers and individuals to benefit from the two-pot retirement system, with outflows being more easily managed and a greater share of capital locked in until maturity. 

While there have been billions in withdrawals during the first six months of the system’s implementation, this is expected to decline towards a steady state of withdrawals lower than those seen before the two-pot system. 

FNB Wealth and Investments CEO Bheki Mkhize said that the government managed to strike a good balance between workers’ demands, the retirement industry’s interests, and its own interests. 

He said FNB’s models indicate the new system will benefit both savers and the industry in the long run. It will give people the liquidity they need in desperate times while keeping two-thirds of their savings invested. 

FNB noted in their studies that many South Africans would cash out their pensions when they moved jobs or resigned. This means they will lose out on the benefits of compound interest and impact the industry’s assets under management. 

The new system will adequately address this issue, according to Mkhize, and thus result in more savings being invested until maturity, benefitting savers and asset managers.

Outgoing Old Mutual CEO, Iain Williamson, also expects the system to benefit South Africans and asset managers in the long run. 

He explained that most retirement savings will be left invested for retirement rather than withdrawn and heavily penalised. 

So far, a big winner has been the South African government, with SARS collecting an additional R12.9 billion in tax revenue in the first six months of the system’s implementation. 

This significantly improved the government’s financial position at the end of its last fiscal year and is expected to boost economic growth through increased consumer spending in the short term.