SA retirement two-pot system sees R60bn withdrawn in first year

CAPE TOWN — 9 July 2024

South Africans have withdrawn around R60 billion from retirement funds since the two-pot system started a year ago, with National Treasury reporting overall success despite some challenges.

The system appears to have strengthened long-term savings, increased engagement with retirement funds, and exposed non-compliant employers, officials told the National Council of Provinces (National Treasury). Administrative hurdles remain under review.

Momentum Corporate’s Rob Southey said data disproved fears of frivolous spending — “most members are using their withdrawals to reduce debt, pay for education, or put down deposits on second-hand vehicles” — showing effective communication.

However, repeat withdrawals raise concerns: “More than 80% of those who accessed funds… have withdrawn again, often multiple times.” This suggests reliance on such withdrawals to manage ongoing financial pressures, sometimes for repaying short-term loans only to incur new debt immediately (Southey).

Many members were unaware that withdrawals face marginal tax rates, with SARS deducting unpaid taxes like PAYE directly. While SARS offers an online tax calculator, hesitancy remains over providing personal details (National Treasury).

The long-term cost is significant: a 25-year-old saving R20,000 monthly could lose R1.7 million by retirement if making annual withdrawals compared to saving fully. Younger members “may not yet fully grasp the long-term consequences” (data modelling).

Industry experts call for clearer communication showing withdrawal impacts through real scenarios and wider access to financial advice. Fund trustees should consider endorsing advisors to ensure quality guidance.

Though “teething issues” persist, ongoing adjustments aim to secure the system’s foundation while urging members to consider the future cost of today’s withdrawals.