By: Lonwabo Mtyeku | Photo Credit: Supplied
South Africa’s retirement landscape is undergoing a profound behavioural shift, as the implementation of the Two-Pot Retirement System moves from policy mechanics to real-world impact. While the system has improved access to funds in times of need, it is increasingly raising concerns about long-term financial sustainability—and placing employers at the centre of the solution.
Introduced in 2024, the system divides retirement contributions into two distinct components: a retirement pot, which remains preserved until retirement, and a savings pot, which allows limited annual withdrawals. A third component, the vested pot, houses legacy savings under previous rules.
Early Access, Long-Term Risk
In its first year, the system unlocked significant liquidity for South African workers, with withdrawals from savings pots reaching approximately R57 billion. But beyond the headline figure lies a more nuanced and potentially concerning trend—repeat withdrawals.
Data indicates that roughly 62% of claimants are now on their third withdrawal, suggesting that what was designed as an emergency mechanism is, for many, becoming a recurring financial tool.
For households under sustained financial pressure, the savings pot is increasingly being used to service high-cost debt, including informal lending and payday loans. While this provides immediate relief, it introduces a structural risk to long-term retirement adequacy.
According to Thabang Thaoge, Executive Head for Employee Benefits at First National Bank, this behavioural shift requires urgent attention.
“Access to retirement savings can be a lifeline during times of financial distress. But if withdrawals become routine rather than exceptional, the long-term impact on retirement outcomes can be significant. That’s where employer engagement becomes critical,” he says.
The Hidden Cost of Convenience
The long-term implications of early withdrawals are often underestimated, particularly the compounding effect lost over time.
Consider a mid-career employee aged 45 with R500,000 in retirement savings, contributing R5,000 monthly with an average annual return of 8%:
- Without withdrawals, their retirement savings could grow to approximately R5.08 million by age 65.
- A once-off withdrawal of R200,000 at age 50 reduces this to around R4.72 million—a loss of roughly R360,000.
- Regular annual withdrawals of R30,000 could see the final value decline dramatically to about R2.76 million.
The mechanics are straightforward but powerful: capital withdrawn today not only reduces the base but eliminates decades of compound growth. Compounding, often described as the “engine” of long-term investing, works most effectively over uninterrupted time horizons.
Compounding this effect—literally and figuratively—is taxation. Withdrawals from the savings pot are taxed at an individual’s marginal rate, meaning employees often receive significantly less than anticipated.
“Employees tend to focus on the immediate cash benefit,” Thaoge notes. “What is less visible is the long-term compounding effect of that decision. Over 20 or 30 years, the impact can be substantial.”
Employers as Financial Stewards
As the system matures, attention is shifting toward behavioural economics and the role of institutional influence—particularly employers.
Organisations offering retirement benefits are uniquely positioned to shape financial decision-making. Beyond facilitating access to retirement funds, they can act as conduits for financial literacy, helping employees contextualise short-term choices within long-term financial planning.
“Employers already invest significantly in retirement benefits for their staff. Helping employees understand how to protect those savings is a natural extension of that investment,” says Thaoge.
This does not imply restricting access to funds. The two-pot framework was deliberately designed to provide flexibility during genuine financial emergencies. Rather, the emphasis is on informed decision-making—ensuring employees understand both the immediate benefits and the long-term trade-offs.
Building a Culture of Financial Awareness
Forward-looking organisations are increasingly partnering with financial institutions and retirement fund administrators to embed financial education into the workplace. This includes targeted workshops, digital tools, and personalised advisory services that illustrate the real cost of early withdrawals.
The objective is not to eliminate withdrawals, but to reframe them as deliberate, informed decisions rather than default responses to financial pressure.
As South Africa navigates this new retirement paradigm, the message is clear: access must be balanced with accountability. And in that equation, employers have a critical role to play.
By fostering a culture of financial awareness, they can help ensure that retirement savings fulfil their intended purpose—not as a routine source of liquidity, but as a secure foundation for long-term financial stability.
