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The Citizen
19-07-2025
- Business
- The Citizen
Two-pot retirement system: warning about long-term consequences
Is your emergency big enough to make it necessary to withdraw some of your retirement savings under the two-pot retirement system? While consumers are smiling now as they are able to use the money from the savings pot under the two-pot retirement system, experts are sounding the alarm that annual withdrawals could leave pension fund members very poor in retirement. John Manyike, head of financial education at Old Mutual, points out that the number of South Africans who can retire with adequate pension has been at a staggering 6% and therefore people who withdraw funds under the two-pot retirement system are expected to be very poor when they retire. He was speaking at the company's mid-year economic outlook presentation. 'Since the inception of the two-pot retirement system, Old Mutual saw withdrawals of a total of almost R4 billion, with fund members receiving about R2.8 billion, with withdrawals averaging R12 2000 per member. 'People are not using their withdrawals from the savings pot of the two-pot retirement system to buy cars. Most of them will tell you they are withdrawing funds to pay debts. However, if you look at reports from the banks I do not think it will confirm that people are paying off their debts.' ALSO READ: Two-pot retirement system: Almost 4 million withdrawals close to R57 billion The profile of most who withdraw under the two-pot retirement system According to Manyike, most members who withdraw under the two-pot retirement system are between the ages of 31 and 40, with the highest numbers between the ages of 36 and 40. He finds it worrying that people at their prime age are withdrawing from their retirement funds. The majority of people making withdrawals falls earn between R5 000 to R10 000 per month and Manyike says this show that more vulnerable people who may be struggling to make ends meet who are dipping into their retirement savings. 'We hope they use this money for emergencies, as it was intended for.' Michelle Acton, chief customer officer at Old Mutual Corporate recently pointed out that Old Mutual Corporate's 2025 Member Two-Pot Withdrawal Survey showed that 45% of retirement fund members who accessed their savings under the two-pot retirement system did so to service debt. Another 35% used the funds to cover everyday expenses such as groceries, school fees and rent, while more than 70% said they would withdraw again. The tax implications would keep them from withdrawing again and not concerns to preserve their retirement savings for retirement. 'We also noticed a significant increase in savings pot claims at the start of the new tax year, despite only small amounts being available. Of the 413 000 savings pot claims submitted since the two-pot retirement system's inception, 93 000 or roughly 23% were made in the new tax year alone, from 1 March 2025 onwards. 'This confirms the earlier finding: employees will withdraw again if they can, due to financial stress.' ALSO READ: Two-pot retirement system: 75% of second year withdrawals are repeats Use of two-pot retirement system raises questions about financial literacy Acton says that for some pension fund members, this raises questions about financial literacy, although that perspective risks overlooking another issue. 'Employees are not irrational — many are simply financially overwhelmed. They are not failing to plan but struggling to survive.' She points out that the introduction of the two-pot retirement system shifted how employees interact with their retirement savings. 'This creates challenges as well as opportunities for businesses. As employees adjust to the new system, business leaders must step up to support their workforce in balancing short-term financial needs with long-term security.' As early trends under the two-pot retirement system begin to emerge, employers must reckon with a difficult reality: current financial wellbeing strategies may need to be rethought to truly support their employees' financial security, Acton says. 'While workers are engaging with their retirement savings, they do so under financial pressure and often without the support they need to make sustainable long-term decisions.' ALSO READ: Two-pot retirement system: withdrawals not being used for emergencies High withdrawal does not mean failure of two-pot retirement system Acton says it is easy to interpret high withdrawal rates as a failure of the two-pot retirement system or a lack of engagement with the reform. However, she says, this overlooks the core intent of the policy. 'One of its most important features is that members can no longer cash out their full retirement benefit when changing jobs which was historically the biggest destroyer of retirement outcomes in South Africa. 'Old Mutual's own modelling shows that the system improves long-term outcomes, particularly by closing this critical preservation gap. 'But it also shows a more sobering truth: many South Africans simply do not earn enough to save and preserve simultaneously. No amount of financial education can change that without acknowledging it first.' She says the Remchannel April 2025 Salary and Wage Survey clearly illustrates this income strain. 'Despite the inflation rate easing to approximately 3% and average salary increases surpassing this rate at 5.82%, employees continue to experience financial pressures due to rising living costs, particularly for essential goods and services. 'For many households, the salary increases provided are insufficient to absorb the escalating living expenses or reduce debt, let alone support long-term savings. People are making tough choices, not careless ones.' ALSO READ: Two-pot retirement system: rather find an alternative than dip into the savings pot Surge of interest at start of two-pot retirement system The initial rollout of the two-pot retirement system sparked a surge in interest, revealing just how little many employees knew about their retirement benefits. The traction on social media, from TikTok discussions to cheeky brand mentions by the likes of Nando's, shows that retirement savings are no longer seen as a distant or abstract concern but are entering everyday conversations. Acton says the big question now is: how do we use this momentum to benefit employees and ensure they make informed, long-term financial decisions? 'A key challenge for businesses is that meaningful workplace discussions about retirement planning are still too rare. 'Despite growing attention on financial wellbeing, the topic remains sidelined in many organisations, often clouded by jargon, distrust, or lack of visibility.' She says a critical insight from these internal conversations is that while retirement funding was once largely seen as the employer's responsibility, today's employees are expected to plan for their futures on their own, a shift that can leave many employees feeling ill-equipped and unsure of how to manage their financial future. 'Another key observation is that financial education often fails because the information provided can feel disconnected from employees' real-life circumstances. 'For financial education to be effective, it must resonate with employees on a personal level, considering their individual financial realities, challenges, and needs.'
Eyewitness News
13-07-2025
- Business
- Eyewitness News
Motshekga backs Ramaphosa for waiting for dust to settle on Mkhwanazi allegations before addressing nation
Meanwhile, Motshekga, in response to Parliament's portfolio committee chair on defence Dakota Legoete's criticism over a shrinking defence budget, said that Parliament was made aware of the issue because of the department. Last week, Motshekga delivered her department's budget vote, which went from R58 billion in the last fiscus to R57 billion this time around. The minister said that the South African National Defence Force (SANDF) was operating at 50% and remained at risk."Even giving them the figures of what as Parliament, but what also Cabinet should do and the president is very conscious and aware of the problems. He's tasked Treasury to engage with us to see what it is we can do urgently, but the envelope is tight." READ MORE:• Holomisa warns of escalating domestic threats, wants military to enhance SA's internal security • Motshekga tables defence budget, says dept will do more with 'the little we have'
Eyewitness News
11-07-2025
- Politics
- Eyewitness News
Legoete says government must be educated on importance of a well-capacitated SANDF
JOHANNESBURG - Parliament's Portfolio Committee on Defence chair, Dakota Legoete, said government, including the president, need to be educated on the importance of a well-capacitated South African National Defence Force (SANDF). The committee chair said the department's budget decreased, despite a global crisis that has left more countries bolstering their military capabilities. On Wednesday, Minister Angie Motshekga tabled a R57 billion budget – a marginal drop from 2024's R58 billion. Legoete – an African National Congress (ANC) member of Parliament (MP) who currently serves as one of the committee chairs of defence – is refusing to stay mum as the department's purse continues to shrink. 'I have taken an oath of office to be loyal to the republic and defend its people, and I will be failing if I'm not honest. I also need to be another Mkhwanazi so that people must understand, we are getting sick and tired of being sick and tired.' He said money over the years has not been used to capacitate the country's military, but instead to bail out sinking state-owned enterprises (SOEs). Legoete said the country remains vulnerable. 'We are the only ones still at 0.7% but expect not to have porous borders, expect not to have the criminal elements that extort people, even on the cyber level, South Africa has one of the highest targets in the globe.' He said the president and his government must be taught about a war cabinet and its functions, including how to override allocation of funds to favour security and defence.
eNCA
10-07-2025
- Politics
- eNCA
Motshekga defends defence budget allocation
JOHANNESBURG - There's been rising concern about South Africa's National Security and the ability of the SA National Defense Force to protect the nation and the numbers aren't helping. The Minister of Defence and Military Veterans, Angie Motshekga, appeared in parliament on Wednesday to outline her department's budget. The budget for the Department of Defence is just over R57 billion but the majority of that, in fact 64%, goes toward paying staff.
The Citizen
10-07-2025
- Business
- The Citizen
Two-pot retirement system: Here's what people used it for
A new survey shows that the people who are most likely to withdraw funds under the two-pot retirement system also know the least about it. Although government implemented the two-pot retirement system in September last year to help South Africans get access to their retirement savings in emergencies, it seems that not everyone who withdrew money used it for a real emergency. According to the 2025 FNB Retirement Insights Survey, conducted among a sample base of 1 041, awareness of the two-pot retirement system is now widespread, with 69% of respondents indicating they are familiar with it, with 47% feeling fully aware, while 22% said they know a little about it, 15% have heard of it, but do not know what it means and 16% know nothing about it. Samukelo Zwane, product head at FNB Wealth and Investments, says the good news from the survey is that actual withdrawal rates from savings pots under the two-pot retirement system remain relatively low at just 26% and only 26% of these withdrew R20 000 or more, driven by the emerging affluent market. ALSO READ: Two-pot retirement system: Almost 4 million withdrawals close to R57 billion Reasons for two-pot retirement system withdrawals He says the main reasons that people withdrew funds were to cover daily living expenses and manage debt. 'This cautious approach is positive given the potential damage that early withdrawals can do to long-term retirement savings. 'The findings suggest that many South Africans are demonstrating restraint, which is crucial to protect long-term retirement outcomes. Continued financial education will be vital to reinforce the value of preservation.' Besides covering daily expenses and debt, people are also withdrawing funds to pay for education, unexpected expenses, holidays and even to reinvest. These were the top reasons for two-pot retirement system withdrawals: Cover day-to-day expenses: 48% Pay off debt: 46% Education fees: 30% Unforeseen expenses: 26% New appliances: 25% Holidays: 23% Reinvested: 20% ALSO READ: Two-pot retirement system: 75% of second year withdrawals are repeats Withdrawals among people younger and older than 60 In the group of respondents who are younger than 60, 43% of the 74% who already withdrew funds, said they would not withdraw from their savings pots in the future, while 31% said they would. People from the Affluent (65%) and Wealth (51%) groups feel most strongly about not withdrawing (65% and 51%). People from the Entry Wallet and Entry Banking groups (38%) noted the highest propensity to withdraw under the two-pot retirement system The withdrawal rates of the group of respondents older than 60 remained consistent at about 30%, with debt repayment the primary reason for withdrawing. Zwane says from a behavioural perspective, FNB data shows that withdrawal decisions were not only a consequence of immediate needs but were also shaped by life stage and income levels. 'The withdrawal statistics align with external findings that the bulk of withdrawals came from individuals with fund credits below R250 000, which typically translates to people and families that are most likely facing immediate financial pressures.' ALSO READ: Misconceptions about the two-pot retirement system: What you need to know He points out that the two-pot retirement system already triggered shifts in consumer behaviour when it comes to retirement savings. 'Introduced to balance long-term preservation with limited pre-retirement access to funds, the two-pot retirement system divides new contributions into the two distinct components of a 'retirement pot' that remains locked until retirement and a 'savings pot' that people can withdraw money from under specific conditions.' Understanding of two-pot retirement system He notes that the depth of understanding varies across income groups, with people in the affluent group having greater awareness than Entry Wallet customers. 'What consumers are doing with these withdrawals reveals a lot about the current economic realities and the financial pressures many South Africans face.' ALSO READ: Two-pot retirement system: Do you know enough? He believes that the small but also meaningful group reinvesting their withdrawn funds elsewhere suggests that they are unhappy with the performance of their retirement investments, or that they are simply trying to leverage the system as a liquidity tool. 'These FNB findings are echoed in national trends. Within six weeks of implementation, the South African Revenue Service (Sars) reported more than 1.1 million approved withdrawal applications, with R22 billion paid out. 'By January 2025, over 2.6 million withdrawals had been processed, pushing total disbursements past R43 billion. The South African Reserve Bank has projected that total withdrawals in the initial months could range from R40 billion to R100 billion, suggesting a short-term financial boost for a great many households, but it also raises the potential for negative long-term consequences, especially when it comes to retirement savings adequacy.' What determines success of two-pot retirement system Zwane says what is clear is that the success of the two-pot retirement system over time will depend massively on education and behavioural guidance. 'It is concerning that FNB's research points to a lack of awareness in lower-income groups and confusion about long-term impacts among many of those who are aware. 'This highlights the fact that financial institutions, retirement fund administrators and financial advisors have a key role to play in helping consumers understand not just how to access their money, but whether they should. 'Consumers are generally aware of the two-pot retirement system rule applied to retirement funds. However, our findings indicate that less than one-third of consumers made a withdrawal, with the primary motivations being to cover daily expenses and manage debt.'
