Many of the retirement fund members who requested savings benefit withdrawals in March and April, the first two months of the new tax year, were dipping into their savings components (pots) for a second time.
According to Natasha Huggett-Henchie, consulting actuary and member of the Actuarial Society of South Africa (ASSA) Retirement Matters Committee, retirement fund administrators represented on the committee reported that about 75% of applications received in the current tax year were repeat claims.
The average withdrawal was R20 000 in the first round of two-pot withdrawals; the applications submitted after 1 March 2025 for the current tax year average about R6 000.
“We are finding that retirement members are taking all they can as soon as they can,” Huggett-Henchie said this week.
The two-pot retirement system, implemented on 1 September 2024, allows retirement fund members to dip into their savings component once in a tax year, provided they have at least R2 000 plus the relevant fees saved in their component.
The new system was designed to force retirement fund members to preserve at least two-thirds of their retirement benefits in the retirement component, which cannot be accessed before retirement, while allowing access to the remaining third in the savings component.
To kick off the two-pot system, the savings components of qualifying fund members were seeded with 10% of a member’s retirement savings (up to R30 000) effective 1 September 2024. Members could withdraw what was in their savings components, as long as it was R2 000 or more after fees, said Huggett-Henchie.
Fund members who made their second withdrawal early in this tax year will have to wait until March 2026 before they can dip into their savings again.
“If you emptied your savings pot in September last year and continued contributing to a retirement fund, you would have started the new tax year on 1 March 2025 with one-third of your monthly retirement fund contributions accumulated over six months in your savings pot. If, say, you contribute R3 000 a month to your retirement fund, R1 000 goes to your savings pot. That means you would have been able to access another R6 000 plus any investment growth at the start of the new tax year.”
Huggett-Henchie said fund members who did not touch the money in their savings components when they became available last September can withdraw the entire amount, even if it is more than R30 000.
“Using the earlier example, if your savings pot was seeded with R30 000 last year and has grown to R36 000, you are allowed to withdraw the full amount. Just remember to check on the tax impact before you decide to withdraw.”
Huggett-Henchie reminded fund members that their savings component withdrawals are taxed by the South African Revenue Service, either at their current marginal tax rate or at a higher rate if the withdrawal pushes the applicant into a higher tax bracket. In addition, there will most likely be an administrative fee payable.
“So don’t expect to get the full amount you applied for,” cautions Huggett-Henchie.
Impact of withdrawals
Then there is the question of whether you should make a withdraw, just because the money is there.
Huggett-Henchie said every withdrawal should be carefully considered, because you are effectively reducing the savings meant to provide for you when you are too old to work and earn a living.
“Every time you make a withdrawal now to fund something other than an emergency, you must understand that you are reducing your future emergency fund. If you empty your savings pot every year, you will effectively have reduced your retirement savings by one-third, which is significant.”
Huggett-Henchie suspects that one of the biggest beneficiaries of the two-pot withdrawals may have been loan sharks. “It seems banks have not seen a big paydown of loans, and retailers have not reported a massive uptick in sales.”
However, she has encountered one fund member using her savings benefit withdrawal to avoid debt.
“A member of one of the funds we administer explained that every year, she would have to take out a loan to fund her children’s school fees. In January this year, she decided to borrow the money from her savings pot and repay it every month, just as she would have had she taken a loan. This way, the money is still there for next year’s school fees, and she is no longer in debt.”
Huggett-Henchie said the next challenge facing the retirement funds industry is employees resigning or being retrenched with small amounts accumulated in their retirement components.
“Often, these amounts are too small to move into a preservation fund or retirement annuity because they do not meet the minimum investment requirements, but in terms of the new two-pot rules, the fund member can also not take the retirement benefit in cash.”
Until this is addressed in the next phase of the two-pot regulations, fund administrators will have to find cost-effective ways of dealing with these “problem pots”, she said.
