Two years of Two-pot: What do the numbers say?

Two years of Two-pot: What do the numbers say?

In September 2024, South Africa overhauled its retirement framework to introduce the Two-pot retirement system. The main aim was to balance short-term financial needs with long-term security. Two years later, what do the numbers tell us?

Previously, members had to resign to access their retirement savings. The Two-pot system was designed to address this challenge by allocating one third of contributions to a savings pot that can be accessed before retirement. Each tax year, members are allowed to withdraw a minimum of R2 000 from this savings component without changing jobs. The intention is to provide a financial safety net in times of need, while preserving the remaining two-thirds of savings until retirement age. 

Members are using their savings to survive, not to splurge

When the Two-pot system was introduced, most members said they would use their savings pot for debt or emergencies, according to Michelle Acton, chief customer officer at Old Mutual Corporate.

Old Mutual Corporate’s surveys indicate a shift. In its latest data, basic living costs, like rent, electricity and school fees, have become more prominent reasons for withdrawal. Momentum Corporate’s latest data, however, still shows debt as the largest reported use of withdrawals, at 44%, compared with 23% for everyday living expenses and 20% for education. Where the money is used for debt, it is usually informal debt, such as loans from mashonisas (loan sharks) or money borrowed from family.

While the specific reasons vary across datasets, the broader trend is clear: withdrawals are largely being driven by financial necessity rather than spending on “wants” such as holidays or luxury items. 

It is not only the lowest earners withdrawing

A common assumption is that withdrawals are concentrated among South Africa’s lowest earners. The reality is more nuanced.

Middle-income households, not the poorest, have emerged as the biggest withdrawers of Two-pot savings, said Nashalin Portrag, head of FundsAtWork and distribution at Momentum Corporate.

Portrag explains that this comes down to the system’s rules: members must have a minimum of R2 000 available in the savings pot before they can make a withdrawal. Many lower-income and emerging middle-class members cannot withdraw because their balances fall below that threshold. Middle-class members usually have more saved, which turns their retirement fund into a backup fund when the cost of living rises.

Discovery’s data adds more texture. Guy Chennells, the group’s chief commercial officer for corporate and employee benefits, told the Institute of Retirement Funds Africa conference in September that lower-income members withdraw at three times the rate of higher-income members.

However, when financial behaviour is considered, the picture changes significantly. Discovery found that very high-income earners who struggle to manage their finances withdraw from their savings pots at three and a half times the rate of very low-income earners with strong financial habits. The finding highlights an important point: while income influences withdrawal behaviour, financial wellness and money management may be even stronger predictors of whether members access their retirement savings.

And the good news?

One of the clearest benefits of the Two-pot system has been a significant increase in member engagement. According to the latest Sanlam Benchmark Survey, 84% of stand-alone funds and 80% of umbrella funds reported increased member engagement since the Two-pot system began. More members are checking their balances, asking questions and paying closer attention to their retirement savings than ever before.

There are also encouraging signs when it comes to preservation. Old Mutual Corporate reports a 33% increase in preservation rates, with the proportion of members cashing out their retirement savings when changing jobs falling from 61% to below 50%. If this trend continues, their modelling suggests the percentage of South Africans on track for a financially secure retirement could rise from about 6% to as much as 20% over time.

However, preservation alone does not guarantee retirement adequacy, warned Acton. Ultimately, retiring comfortably depends on how much members contribute (i.e. contribution rate), how long they remain invested, investment returns, and how often they withdraw.

The Two-pot system appears to have solved one problem – giving members access to money without requiring them to leave employment. Yet, it has also highlighted an important trade-off: every withdrawal provides short-term financial relief but may come at the cost of future retirement wealth.

For members, two things are worth checking: whether your contribution rate is enough to meet your retirement goals, and how repeated withdrawals could set that goal back.

A good place to start is by checking your contribution rate on your payslip or your fund’s member portal and assessing whether it aligns with the retirement outcome you want to achieve.