Two-pot retirement savings warning for South Africans

Many retirement fund members have tapped into their savings pots for a second time early in the 2025 tax year, raising concerns that repeated withdrawals erode retirement savings and benefit loan sharks.

Natasha Huggett-Henchie, a consulting actuary and member of the Actuarial Society of South Africa (ASSA), explained that many of the consumers who had already made two-pot withdrawals were dipping back into their savings pot.

For many members who requested withdrawals from their savings pots in March and April 2025, this is the second time they are taking money out of retirement.

According to Huggett-Henchie, retirement fund administrators represented on the committee reported that around 75% of applications received in the current tax year were repeat claims.

She added that the average withdrawal was R20,000 in the first round of two-pot withdrawals. The applications submitted after 1 March 2025 for the current tax year average around R6,000.

Huggett-Henchie explained that there is a trend of South Africans withdrawing as much of their savings as possible. “We are finding that retirement members are taking all they can as soon as possible.”

The two-pot retirement system, implemented on 1 September 2024, allows retirement fund members to dip into their savings pot once in a tax year, provided they have at least R2,000 plus the relevant fees saved in their pot.

The new system was designed to force retirement fund members to preserve at least two-thirds of their retirement benefits in one pot that cannot be accessed before retirement.

At the same time, it allows members access to the remaining third in a second “savings” pot when emergency funding is needed.

To kick off the two-pot system, the savings pots of qualifying retirement fund members were seeded with 10% of a member’s retirement savings, effective 1 September 2024.

Members could withdraw money from their savings pots as long as it was R2,000 or more after fees, with the maximum allowable withdrawal being R30,000.

She pointed out that retirement fund members who made their second withdrawal early in this tax year will have to wait until March 2026 before they can dip into their savings again.

Early withdrawals will cost you

If you emptied your savings pot in September last year and continued contributing to a retirement fund, your monthly contributions would have started accumulating again.

By 1 March 2025, the beginning of the new tax year, one-third of those contributions made over six months would be in your savings pot.

“If, say, you contribute R3,000 a month to your retirement fund, R1,000 goes to your savings pot. That means you would have been able to access another R6,000 plus any investment growth at the start of the new tax year.”

Huggett-Henchie explained that retirement fund members who did not touch the money in their new savings pots when they became available last September can withdraw the entire amount, even if it is more than R30,000.

“Using the earlier example, if your savings pot was seeded with R30,000 last year and has grown to R36,000, you are allowed to withdraw the full amount. Just remember to check on the tax impact before you decide to withdraw.”

Huggett-Henchie reminded retirement fund members that the South African Revenue Service (SARS) taxes their savings pot withdrawals.

They are charged at either their current marginal tax rate or at a higher rate if the withdrawal pushes the applicant into a higher tax bracket.

In addition, there will most likely be an administrative fee payable. “So don’t expect to get the full amount you applied for.”

The more important question is whether you should withdraw in the first place, even though the member may qualify to do so.

Huggett-Henchie stressed that every withdrawal should be carefully considered because you are effectively still reducing the savings meant to provide for you when you are too old to work and earn a living.

“So every time you make a withdrawal now to fund something other than an emergency, you must understand that you are reducing your future emergency fund.”

“If you empty your savings pot every year, you will effectively have reduced your retirement savings by one-third, which is significant.”

Depending on the size of your withdrawals and your contributions, taking out your two pot savings early could cost you well over R1 million by the time you retire.

Problem pots

According to Huggett-Henchie, loan sharks may have been one of the biggest beneficiaries of the two-post withdrawals.

“It seems banks have not seen a big paydown of loans, and retailers have not reported a massive uptick in sales,” she said. However, she has encountered one retirement fund member using her savings pot money to avoid debt.

“A member of one of the funds we administer explained that every year, she would have to take out a loan to fund her children’s school fees.”

“In January this year, she decided to borrow the money from her savings pot and repay it every month, just as she would have had she taken a loan.”

The logic behind this decision, Huggett-Henchie said, is that their money is still there for next year’s school fees, and she is no longer in debt.

Huggett-Henchie said the next challenge facing the retirement funds industry is employees resigning or being retrenched with small amounts accumulated in their retirement pots.

These small balances are typically too low to qualify for transfer into a preservation fund or retirement annuity, as they do not meet the minimum investment thresholds set by financial institutions.

At the same time, under the current two-pot rules, fund members are not allowed to withdraw these amounts in cash, leaving the money effectively stranded unless regulatory changes are introduced.

She added that until this is addressed in the next phase of the two-pot regulations, fund administrators will have to find cost-effective ways of dealing with these “problem pots”.