Two-pot withdrawals: Are we undoing our own progress?

Working South Africans appear to be taking retirement planning more seriously but many of us are also putting our retirement income at risk with frequent withdrawals from our savings pots to extend our budgets.

The two-pot retirement system is highlighting the tension between today and tomorrow, Samukelo Zwane, head of product at FNB Wealth and Investments, says in the recently released FNB Retirement Insights survey.

The system that was introduced in September 2024 obliges retirement fund members to preserve two-thirds of retirement savings until retirement. This is expected to improve income in retirement.

The latest Sanlam Benchmark survey shows that on average retirement fund members have enough savings to replace only 25 percent of the income they were earning before retirement.

Funds are typically set up to get members to 75 percent of their income, but withdrawals cause many members to miss this target.

The two-pot system has stopped withdrawals by members changing jobs but has given all members access to a third of what they save through their savings pots.

And members have been accessing these savings, undermining the progress from having retirement plans and being forced to preserve their retirement pots. The withdrawals driven are largely by immediate financial needs such as day-to-day expenses, debt and household purchases, Zwane says.

More people making plans

FNB's latest Retirement Insights Survey points to a notable shift in how South Africans are approaching retirement planning.

According to the survey, 73 percent of South Africans under the age of 60 now have a retirement plan, up from 60 percent a year ago. The improvement is even more pronounced among lower-income earners, where the proportion with a retirement plan has increased from 19 percent to 48 percent, Zwane says.

According to him, the lender is also seeing people commit a greater share of their disposable income to retirement savings, with average contributions rising from seven percent in 2024 to 10 percent this year. “For a country that has consistently struggled with low retirement savings, these are encouraging signs and suggest that more South Africans are taking a longer-term view of their financial wellbeing,” he adds.

Retirement plans must be robust

Making a plan is a good start but it needs to be robust enough to provide the income you need in retirement and not compromised by withdrawals for short-term needs.

Although the withdrawals are smaller and limited under the two-pot system, members have accessed billions and paid large chunks of it in tax.

AlexForbes has paid out R15 billion since the launch of the two-pot system, processing almost 1.1 million claims, including around 220 000 in March alone after the new tax year started allowing members who had withdrawn in 2025 to withdraw again.

The company says roughly one-third of eligible members withdraw their available savings every year.

Sanlam processed more than 300 000 claims worth R4.6 billion between September 2024 and December 2025.

Why are members withdrawing

The FNB survey shows that the top three reasons for making withdrawals are:

• To cover day-to-day expenses (46 percent);
• To purchase new appliances (36 percent); and
• To pay off debt (35 percent).

Michelle Acton, chief customer officer at Old Mutual Corporate, told a recent retirement conference that the company had surveyed more than 35 000 retirement fund members who had made withdrawals under the two-pot retirement system to better understand why they had accessed their savings.

Acton said that while debt repayment featured prominently in the early months following the introduction of the two-pot system, Old Mutual's latest research shows that basic living needs have now overtaken debt as the primary reason for withdrawals. Members are increasingly using the money to cover essential expenses such as food, school fees, rent and electricity.

Emergencies and unforeseen expenses are now the second most common reason for withdrawals, followed by debt repayment, she said.

Old Mutual's research also shows that nearly 80 percent of members who can claim, have already accessed their savings pot. Among members who used the money to settle debt, 79 percent say they are likely to make another withdrawal.

Repeat withdrawals compound problems

The two-pot system gives people choice but most are choosing now over later – and the data suggests that will have consequences, Bheki Mkhize, CEO of FNB Wealth and Investments, says in the FNB Retirement Survey Insights.

Withdrawing your savings pot without replacing what you borrow from your future self means you will not achieve the typical pension target to replace 75 percent of what you were earning before retirement. Repeated withdrawals will reduce your pension to an even lower percentage of your pre-retirement income and force you to work longer before you retire, or lower your standard of living in retirement.

Sanlam’s Benchmark survey suggests 80 percent of members will need to work longer than their planned retirement date to retire with enough savings to sustain their lifestyle.

Zwane says it is entirely possible that the introduction of the two-pot retirement system has encouraged more South Africans to start saving for retirement because they know a portion of their money is accessible during genuine financial emergencies. For many lower-income earners, that flexibility may have removed one of the biggest psychological and practical barriers to joining a retirement fund.

“If that is the case, then the increase we are seeing in retirement planning and contributions could, at least in part, be driven by the flexibility that the two-pot system provides,” he says.

“However, this remains a theory. It is still too early to determine whether members who withdraw from their savings pot will compensate by increasing their retirement contributions over time. More broadly, we have yet to establish whether the introduction of the two-pot system has resulted in a sustained increase in average retirement fund contributions across the market.”

Consider your short-term versus long-term needs

When you are pulled in many directions at once, making a withdrawal from your retirement fund savings pot can feel like the quickest solution, but good financial advice can help you step back, weigh the trade-offs and avoid undoing years of disciplined retirement planning, Lizl Budhram, head of advice at Old Mutual Personal Finance, said at the start of this tax year and the new round of savings pot withdrawals.

She says before you withdraw you should consider:

What emergency or situation makes this withdrawal necessary and is using your retirement savings justified or are there other options that better protect your long-term wellbeing?

Have you explored every alternative to address the situation without using your retirement savings? Options may include restructuring debt, adjusting budgets or negotiating payment terms.

Do you understand how the withdrawal will affect your future retirement income by reducing compound returns?

After tax will the amount you want to withdraw actually resolve the issue, or will you face the same problem next year? If you don’t address the root cause you are likely to make recurring withdrawals that drain your savings.

Do you know exactly how much tax the South African Revenue Service (SARS) will deduct and what you will receive in your bank account? Many people are surprised by the tax impact, which can mean the net amount falls short and the underlying problem remains.