Two-pot retirement system: warning about long-term consequences
While consumers are smiling now as they are able to use the money from the savings pot under the two-pot retirement system, experts are sounding the alarm that annual withdrawals could leave pension fund members very poor in retirement.
John Manyike, head of financial education at Old Mutual, points out that the number of South Africans who can retire with adequate pension has been at a staggering 6% and therefore people who withdraw funds under the two-pot retirement system are expected to be very poor when they retire.
He was speaking at the company's mid-year economic outlook presentation.
'Since the inception of the two-pot retirement system, Old Mutual saw withdrawals of a total of almost R4 billion, with fund members receiving about R2.8 billion, with withdrawals averaging R12 2000 per member.
'People are not using their withdrawals from the savings pot of the two-pot retirement system to buy cars. Most of them will tell you they are withdrawing funds to pay debts. However, if you look at reports from the banks I do not think it will confirm that people are paying off their debts.'
ALSO READ: Two-pot retirement system: Almost 4 million withdrawals close to R57 billion
The profile of most who withdraw under the two-pot retirement system
According to Manyike, most members who withdraw under the two-pot retirement system are between the ages of 31 and 40, with the highest numbers between the ages of 36 and 40. He finds it worrying that people at their prime age are withdrawing from their retirement funds.
The majority of people making withdrawals falls earn between R5 000 to R10 000 per month and Manyike says this show that more vulnerable people who may be struggling to make ends meet who are dipping into their retirement savings.
'We hope they use this money for emergencies, as it was intended for.'
Michelle Acton, chief customer officer at Old Mutual Corporate recently pointed out that Old Mutual Corporate's 2025 Member Two-Pot Withdrawal Survey showed that 45% of retirement fund members who accessed their savings under the two-pot retirement system did so to service debt.
Another 35% used the funds to cover everyday expenses such as groceries, school fees and rent, while more than 70% said they would withdraw again. The tax implications would keep them from withdrawing again and not concerns to preserve their retirement savings for retirement.
'We also noticed a significant increase in savings pot claims at the start of the new tax year, despite only small amounts being available. Of the 413 000 savings pot claims submitted since the two-pot retirement system's inception, 93 000 or roughly 23% were made in the new tax year alone, from 1 March 2025 onwards.
'This confirms the earlier finding: employees will withdraw again if they can, due to financial stress.'
ALSO READ: Two-pot retirement system: 75% of second year withdrawals are repeats
Use of two-pot retirement system raises questions about financial literacy
Acton says that for some pension fund members, this raises questions about financial literacy, although that perspective risks overlooking another issue.
'Employees are not irrational — many are simply financially overwhelmed. They are not failing to plan but struggling to survive.'
She points out that the introduction of the two-pot retirement system shifted how employees interact with their retirement savings.
'This creates challenges as well as opportunities for businesses. As employees adjust to the new system, business leaders must step up to support their workforce in balancing short-term financial needs with long-term security.'
As early trends under the two-pot retirement system begin to emerge, employers must reckon with a difficult reality: current financial wellbeing strategies may need to be rethought to truly support their employees' financial security, Acton says.
'While workers are engaging with their retirement savings, they do so under financial pressure and often without the support they need to make sustainable long-term decisions.'
ALSO READ: Two-pot retirement system: withdrawals not being used for emergencies
High withdrawal does not mean failure of two-pot retirement system
Acton says it is easy to interpret high withdrawal rates as a failure of the two-pot retirement system or a lack of engagement with the reform. However, she says, this overlooks the core intent of the policy.
'One of its most important features is that members can no longer cash out their full retirement benefit when changing jobs which was historically the biggest destroyer of retirement outcomes in South Africa.
'Old Mutual's own modelling shows that the system improves long-term outcomes, particularly by closing this critical preservation gap.
'But it also shows a more sobering truth: many South Africans simply do not earn enough to save and preserve simultaneously. No amount of financial education can change that without acknowledging it first.'
She says the Remchannel April 2025 Salary and Wage Survey clearly illustrates this income strain.
'Despite the inflation rate easing to approximately 3% and average salary increases surpassing this rate at 5.82%, employees continue to experience financial pressures due to rising living costs, particularly for essential goods and services.
'For many households, the salary increases provided are insufficient to absorb the escalating living expenses or reduce debt, let alone support long-term savings. People are making tough choices, not careless ones.'
ALSO READ: Two-pot retirement system: rather find an alternative than dip into the savings pot
Surge of interest at start of two-pot retirement system
The initial rollout of the two-pot retirement system sparked a surge in interest, revealing just how little many employees knew about their retirement benefits.
The traction on social media, from TikTok discussions to cheeky brand mentions by the likes of Nando's, shows that retirement savings are no longer seen as a distant or abstract concern but are entering everyday conversations.
Acton says the big question now is: how do we use this momentum to benefit employees and ensure they make informed, long-term financial decisions?
'A key challenge for businesses is that meaningful workplace discussions about retirement planning are still too rare.
'Despite growing attention on financial wellbeing, the topic remains sidelined in many organisations, often clouded by jargon, distrust, or lack of visibility.'
She says a critical insight from these internal conversations is that while retirement funding was once largely seen as the employer's responsibility, today's employees are expected to plan for their futures on their own, a shift that can leave many employees feeling ill-equipped and unsure of how to manage their financial future.
'Another key observation is that financial education often fails because the information provided can feel disconnected from employees' real-life circumstances.
'For financial education to be effective, it must resonate with employees on a personal level, considering their individual financial realities, challenges, and needs.'
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