consumers drawing as much and as often as they can

Just over a year since the two-pot retirement system was implemented in September last year, retirement administrators are seeing clear patterns in withdrawal behaviour that all point to the fact that South Africans are struggling financially.

Nzwananai Shoniwa, managing executive for Sanlam Umbrella Solutions, says between 1 September 2024 and 31 August 2025, Sanlam Corporate paid out approximately R4 billion across 223 000 emergency-pot claims, with R1 billion in tax flowing to Sars.

“On average, we are paying out about R150 million a month, but when the new tax year opened in March, withdrawals spiked to just under R400 million. Around 70% of those March withdrawals came from people who had already withdrawn money before.

“Almost everyone takes the maximum they can, with 81% drawing the full allocation, with the average withdrawal sitting at R22 100 and 27% of our total members choosing to make withdrawals.”

ALSO READ: Two-pot retirement system: 75% of second year withdrawals are repeats

Who is withdrawing and why does it matter?

Shoniwa says withdrawals are concentrated among mid-career workers with 42% between the ages of 35 and 44, 28% between 45 and 54 and 22% between the ages of 25 and 34. Gender is only slightly skewed with 55% male and 45% female.

What do they use the money for? “Our 2025 Sanlam Benchmark Survey shows where the money is going. The top use is paying down debt (44%), followed by school fees (33%) and then supporting unemployed family members. Rent, food and medical expenses also feature strongly.

“Discretionary items like holidays or cars were mentioned, but they make up only a small percentage. This reflects the broader reality: people are under strain and use their withdrawals mainly for survival.”

However, this way of survival also has consequences that cannot be ignored. “The tension is stark: short-term relief compared to long-term security. On one hand, the two-pot retirement system gave households a vital lifeline. People can now draw from their retirement savings to pay off debt, cover school fees or simply get through the month.”

ALSO READ: Two-pot retirement system: withdrawing for the right reasons every year

Long-term consequences of withdrawing every year can be severe

But the long-term consequences may be severe, Shoniwa warns, as 80% of withdrawals are from members whose net replacement ratio is already below 50%. This means that they will replace less than half their final salary at retirement, well below the 70–80% generally needed to maintain their standard of living.

“These members were already underprepared and withdrawing now may further weaken their position. Every rand taken out reduces the base that could be preserved and allowed to grow, widening the retirement gap.

“The two-pot retirement system was designed to provide short-term access while enforcing long-term preservation, but the data shows many members are withdrawing as soon as they can, even if it puts their eventual outcomes at risk.”

ALSO READ: Lessons from the two-pot retirement system about the realities of savings

Lots of money out of retirement funds, but here are the benefits of the two-pot retirement system

Shoniwa says Sars estimates that, since the two-pot retirement system took effect, approximately R57 billion was paid out to pension fund members, with R15 billion collected in tax. In the short term, that represents a major outflow from retirement portfolios.

But he points out, forced preservation is already showing benefits. “In the past, members typically changed jobs six or seven times over a career and each time, most of them would cash out their entire retirement savings, leaving very little to compound over time.

“The two-pot retirement system changes that dynamic. Even when members now choose the maximum cash option, their retirement portion is preserved and continues to grow. That shift will make a material difference to retirement outcomes compared to the old system of repeated full cash-outs.”

Younger members who joined after September 2024 could still have even better outcomes. They do not have a vested portion and their retirement portion can never be accessed until retirement. This means new entrants are set to retire with stronger savings than previous generations, who typically withdrew every time they changed jobs.

ALSO READ: Two-pot retirement system: the trends one year on

What can employers and funds do now about two-pot retirement system?

Shoniwa says from their perspective, there are several areas where employers and funds can make a real difference to members’ outcomes, such as:

• Benefit counselling: Around 88% of funds offer counselling, yet most members remain unaware that this service exists. Making counselling more visible and accessible will help members understand tax implications, replacement ratios and the long-term impact of withdrawals.
• Holistic planning: Members cannot look at retirement savings in isolation. Budgeting, debt management and retirement goals all connect and umbrella funds now provide digital tools to help members plan in this more integrated way.
• Contribution design: Behaviour matters. If contribution categories start at 5%, most members will default to the lowest option to maximise take-home pay. Employers should review these structures and consider introducing higher levels, for example 12.5% to nudge members towards stronger retirement outcomes from day one.
• Re-broking benefits: Umbrella funds are increasingly competing on broader employee benefits for healthcare, income protection, debt support and financial wellness, not only retirement savings. Employers should re-broke not just contribution rates, but the full package of benefits available to their members.
• Financial education: Encouragingly, 77% of members understand the tax implications of withdrawals. The bigger gap is awareness of the long-term impact on retirement adequacy. “As we often say: when you withdraw, you are stealing from your future self.”

ALSO READ: Two-pot retirement system: rather find an alternative than dip into the savings pot

Everybody must work to educate people about the two-pot retirement system

Shoniwa says pension fund members must strike a balance. “One year in, the two-pot retirement system highlights the trade-off between easing today’s pressure and protecting tomorrow’s income. It did not solve South Africa’s retirement crisis but it reduced leakage and introduced a culture of preservation.”

The next step is clear, he says: South Africa needs a stronger, collective push for financial literacy. “Employers, trustees, providers, regulators and policymakers must work together to ensure members not only understand the tax on withdrawals, but also the long-term impact on their retirement adequacy.

“If we can close that literacy gap and combine it with better counselling, smarter contribution design and more holistic benefits, the long-term promise of the two-pot retirement system of better retirement outcomes for millions of South Africans can be realised.