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Is your emergency sufficiently big to make it essential to withdraw a few of your retirement financial savings below the two-pot retirement system?
While shoppers are smiling now as they can use the cash from the financial savings pot below the two-pot retirement system, specialists are sounding the alarm that annual withdrawals may go away pension fund members very poor in retirement.
John Manyike, head of economic training at Old Mutual, factors out that the variety of South Africans who can retire with ample pension has been at a staggering 6% and due to this fact individuals who withdraw funds below the two-pot retirement system are anticipated to be very poor once they retire.
He was talking on the firm’s mid-year financial outlook presentation.
“Since the inception of the two-pot retirement system, Old Mutual noticed withdrawals of a complete of virtually R4 billion, with fund members receiving about R2.8 billion, with withdrawals averaging R12 2000 per member.
“People aren’t utilizing their withdrawals from the financial savings pot of the two-pot retirement system to purchase automobiles. Most of them will let you know they’re withdrawing funds to pay money owed. However, in the event you have a look at reviews from the banks I don’t suppose it is going to verify that persons are paying off their money owed.”
The profile of most who withdraw below the two-pot retirement system
According to Manyike, most members who withdraw below the two-pot retirement system are between the ages of 31 and 40, with the very best numbers between the ages of 36 and 40. He finds it worrying that folks at their prime age are withdrawing from their retirement funds.
The majority of individuals making withdrawals falls earn between R5 000 to R10 000 monthly and Manyike says this present that extra weak individuals who could also be struggling to make ends meet who’re dipping into their retirement financial savings.
“We hope they use this cash for emergencies, because it was supposed for.”
Michelle Acton, chief buyer officer at Old Mutual Corporate not too long ago identified that Old Mutual Corporate’s 2025 Member Two-Pot Withdrawal Survey confirmed that 45% of retirement fund members who accessed their financial savings below the two-pot retirement system did so to service debt.
Another 35% used the funds to cowl on a regular basis bills akin to groceries, faculty charges and lease, whereas greater than 70% stated they might withdraw once more. The tax implications would hold them from withdrawing once more and never issues to protect their retirement financial savings for retirement.
“We additionally observed a big improve in financial savings pot claims at first of the brand new tax 12 months, regardless of solely small quantities being accessible. Of the 413 000 financial savings pot claims submitted because the two-pot retirement system’s inception, 93 000 or roughly 23% had been made within the new tax 12 months alone, from 1 March 2025 onwards.
“This confirms the sooner discovering: staff will withdraw once more if they’ll, on account of monetary stress.”
Use of two-pot retirement system raises questions on monetary literacy
Acton says that for some pension fund members, this raises questions on monetary literacy, though that perspective dangers overlooking one other problem.
“Employees aren’t irrational — many are merely financially overwhelmed. They aren’t failing to plan however struggling to outlive.”
She factors out that the introduction of the two-pot retirement system shifted how staff work together with their retirement financial savings.
“This creates challenges in addition to alternatives for companies. As staff modify to the brand new system, enterprise leaders should step as much as help their workforce in balancing short-term monetary wants with long-term safety.”
As early tendencies below the two-pot retirement system start to emerge, employers should reckon with a tough actuality: present monetary wellbeing methods might must be rethought to actually help their staff’ monetary safety, Acton says.
“While staff are partaking with their retirement financial savings, they achieve this below monetary stress and sometimes with out the help they should make sustainable long-term choices.”
High withdrawal doesn’t imply failure of two-pot retirement system
Acton says it’s simple to interpret excessive withdrawal charges as a failure of the two-pot retirement system or an absence of engagement with the reform. However, she says, this overlooks the core intent of the coverage.
“One of its most necessary options is that members can now not money out their full retirement profit when altering jobs which was traditionally the largest destroyer of retirement outcomes in South Africa.
“Old Mutual’s personal modelling exhibits that the system improves long-term outcomes, significantly by closing this vital preservation hole.
“But it additionally exhibits a extra sobering fact: many South Africans merely don’t earn sufficient to avoid wasting and protect concurrently. No quantity of economic training can change that with out acknowledging it first.”
She says the Remchannel April 2025 Salary and Wage Survey clearly illustrates this revenue pressure.
“Despite the inflation price easing to roughly 3% and common wage will increase surpassing this price at 5.82%, staff proceed to expertise monetary pressures on account of rising residing prices, significantly for important items and providers.
“For many households, the wage will increase offered are inadequate to soak up the escalating residing bills or cut back debt, not to mention help long-term financial savings. People are making robust selections, not careless ones.”
Surge of curiosity at begin of two-pot retirement system
The preliminary rollout of the two-pot retirement system sparked a surge in curiosity, revealing simply how little many staff knew about their retirement advantages.
The traction on social media, from TikTok discussions to cheeky model mentions by the likes of Nando’s, exhibits that retirement financial savings are now not seen as a distant or summary concern however are getting into on a regular basis conversations.
Acton says the large query now could be: how will we use this momentum to profit staff and guarantee they make knowledgeable, long-term monetary choices?
“A key problem for companies is that significant office discussions about retirement planning are nonetheless too uncommon.
“Despite rising consideration on monetary wellbeing, the subject stays sidelined in lots of organisations, typically clouded by jargon, mistrust, or lack of visibility.”
She says a vital perception from these inner conversations is that whereas retirement funding was as soon as largely seen because the employer’s duty, right this moment’s staff are anticipated to plan for his or her futures on their very own, a shift that may go away many staff feeling ill-equipped and uncertain of methods to handle their monetary future.
“Another key statement is that monetary training typically fails as a result of the knowledge offered can really feel disconnected from staff’ real-life circumstances.
“For monetary training to be efficient, it should resonate with staff on a private degree, contemplating their particular person monetary realities, challenges, and desires.”
