Data from Discovery shows that short-term debt repayment was one of the top reasons claimants accessed their savings under the Two-Pot system, closely followed by the need to cover home or car-related expenses.
Discovery's Corporate and Employee Benefits division manages pension and provident funds for more than 3,000 employer groups and over one million employees.
As part of the new Two-Pot retirement system, claimants were asked to explain their reasons for withdrawing from their accumulated retirement savings.
A similar survey conducted by Old Mutual prior to the implementation of the system showed 60% of its members planned to access their retirement savings to pay off debt.
Guy Chennells, chief commercial officer at Discovery Corporate and Employee Benefits, stated: “Responses showed that the main reason our claimants withdrew from their savings was to resolve home or car expenses (24%). This was closely followed by a need to pay off short-term debt (21%).
“We found it surprising that a significant group of claimants (20%) was using the extra money for education, presumably in the majority of cases for children’s school fees, as well as for day-to-day expenses (11%). Sadly, these are all indications of the cost-of-living crisis faced by so many,” he said.
The Two-Pot retirement system, implemented in September 2024, was primarily designed to help South Africans stay invested in their retirement funds until retirement.
The system allows individuals to access one-third of their retirement savings for short-term needs while preventing them from withdrawing their full retirement fund when changing jobs.
Data from the South African Revenue Service (SARS) revealed that retirement fund members have applied to withdraw a total of R4.1 billion from their savings accounts since the system’s introduction.
From 1 to 10 September, SARS received 161,607 tax directive applications from fund administrators, with 98.9% related to savings withdrawals enabled by the two-pot system.
Old Mutual last week reported receiving 170,000 applications totalling R2.2 billion in withdrawals from two-pot savings, more than double the usual yearly volume of early fund withdrawals. A pre-implementation survey indicated that 60% of its members planned to use their retirement savings primarily to settle debt.
Another major player in the sector, Alexforbes, noted that over 250,000 claims amounting to R4.5 billion were submitted within the last month, with approximately 70% of those successfully processed.
Chennells explained that when claimants selected the ‘Other’ category as their reason for Two-Pot withdrawals, they were asked to provide a written explanation of what ‘Other’ meant for them.
“While a notable 17% of claimants selected ‘Other’ as their motive for withdrawal, most of the reasons given were for home improvements and renovations,” he said.
“This isn’t really recommended as a good use of Two-Pot savings because it does not truly classify as ‘emergency spending’. However, it’s understandable because many South Africans looking to improve their lives simply cannot create discretionary spending from their regular income at the moment.”
Travel was chosen as a reason for withdrawal by only 1% of claimants, indicating that most individuals were not accessing their Two-Pot savings for non-essential expenses.
People aged 35-45 had the highest Two-Pot claim rates
Discovery’s Corporate and Employee Benefits team reported that 22% of eligible retirement fund members opted to make a withdrawal in September.
Those aged 35-45 had the highest number of withdrawals from their accumulated retirement savings, accounting for 27% of those eligible.
“This figure highlights the pressures faced by South Africa’s ‘sandwich generation’, who are supporting both young children and older parents,” added Chennells. “This is compounded by high inflation, increased debt, and rising electricity costs, which have severely impacted household finances.”
Of the 22% of withdrawals in September, withdrawal rates ranged from over 40% for middle-aged individuals with low to medium incomes to less than 1% for high-income earners over 55.
“By age, withdrawal rates were similar for the young and middle-aged (around 25%), but about half that for the over-55 group (13%),” noted Chennells.
“Income was a stronger driver, with low-income claimants at 38%, middle-income at 29%, high-income at 12%, and very high-income at just 4%.”
Despite higher-than-usual withdrawal volumes since 1 September, only 22% of eligible members made a withdrawal.
“So far, withdrawals have been lower than expected, and we hope this is partly because people reconsidered dipping into their retirement savings,” said Chennells. “Understanding other short-term capital options and the tax implications of withdrawals has been crucial in helping people make informed decisions.”
“There may be another spike in withdrawals around Black Friday, Christmas, or the start of the school year,” Chennells said.
“But the low percentage of overall withdrawals suggests that most people understand the importance of only accessing their Two-Pot savings in genuine financial emergencies.”
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