The government may now allow access to the savings pot in another major overhaul of South Africa’s retirement system. Amid surging savings withdrawals, critics warn it could jeopardise retirement security.
By Rob Rose
Hidden away on page 166 of the budget review, deep in “Annexure E”, is another potential bombshell for the two-pot retirement fund system.
The two-pot system, which had been in the works for three years, was only implemented in September, mandating that one-third of new pension contributions would go into a savings pot, from which someone could make withdrawals once a year, and a retirement pot, which could not be touched until retirement.
Yet, in the budget review documents released to media this week – amid a chaotic budget that has now been postponed to March 12 – the National Treasury said it is “beginning work” on measures “that may allow access to the retirement component if an individual has been retrenched and is in financial distress”.
This, Treasury says, comes in response to requests it received during the public consultation process for such a measure to be introduced. “The restructuring required for this proposed reform is complex and therefore forms part of the second phase of the two-pot reforms,” it said.
It would be a significant development since the point of the two-pot system is to ensure compulsory preservation of at least two-thirds of their savings.
As Old Mutual’s retirement reform executive Michelle Acton told Today’s Trustee in October: “Two-pots will strengthen the system hugely because we’ll have a system of compulsory preservation.”
Wishful thinking
That may have been wishful thinking, as Treasury is now considering whether to open the door to both pots being accessed.
In the budget review documents, Treasury tries to provide assurances that “strict conditions” would apply to tapping the retirement pot.
“This may include proof that the individual has no alternative source of income after a period of time, such as payments from the Unemployment Insurance Fund, and limiting access to a percentage of income rather than a cash lump sum,” it said.
But the problem is that once the philosophical objections to accessing the retirement pot have been dismissed, critics fear that these conditions might be diluted too. And that would ultimately compromise people’s ability to retire comfortably.
Then there would be the administrative headaches of revamping a system just a few months old. Even getting to the stage of opening up the savings pot by September was fraught, with some administrators barely making the deadline.
More money
Still, it is evident that the scale of the withdrawals from the savings pot has taken policymakers by surprise.
A year ago, Treasury said “an estimated R5 billion is likely to be raised in 2024/25 due to tax collected as fund members’ access once-off withdrawals”.
Now, it says that tax collected from these withdrawals has amounted to R11.1bn by the end of January – more than double the amount in just five months of the new regime.
Equally, while Treasury said last year that this would be a “once-off event” and “revenue will not flow into the following fiscal years”, it now believes that “withdrawals are expected to continue into the medium term”.
The deluge has taken all institutions by surprise.
Last year, the South African Reserve Bank (SARB) projected that in the most likely scenario, pension fund members would withdraw R40bn in the first year of the two-pot system, which they would use to pay debt and buy goods.
Yet by the end of January, the South African Revenue Service (SARS) said R43.4bn had already been withdrawn, and it had received 2.6m applications for tax directives for withdrawals. This suggests that more than a quarter of all retirement fund members applied.
GDP boost
Given the extra tax windfall that the two-pots system has produced for Treasury, cynics may not be surprised that it is now considering allowing access to the previously verboten retirement pot.
One positive aspect of the new retirement regime is that it has boosted the country’s GDP growth, as people use the money they access to buy goods.
This year, Treasury expects GDP growth to hit 1.9% – more than double last year’s estimated 0.8%. But it said the last three months of 2025 were characterised by “higher consumer spending in response to easing inflation and the onset of the two-pot retirement reform”.
Thankfully, South Africa seems to have avoided Chile’s example. The South American country allowed withdrawals from pension funds in 2020, but there was no outside limit on how much could be withdrawn.
The result: $50bn was pulled out of retirement funds in two years – the equivalent of 16% of GDP. Although tax revenue grew by 40% immediately, it weakened the system so badly that ratings agency Fitch downgraded the country’s sovereign rating
