The South African Revenue Service (SARS) is concerned about the rising number of South Africans withdrawing from their retirement savings.
Many experts warned of severe long-term consequences as a potential second wave of withdrawals looms.
The two-pot system came into effect on 1 September 2024, enabling millions of South Africans to access a portion of their retirement fund savings before retirement.
However, given the country’s tough economic climate, many have viewed the system as a financial lifeline and rushed to make withdrawals.
Just months after its implementation, insurers, fund managers, and even the South African Revenue Service (SARS) have reported that withdrawals have far exceeded initial expectations.
SARS Commissioner Edward Kieswetter recently revealed that the Revenue Service anticipates collecting between R11 billion and R16 billion in taxes from two-pot withdrawals.
He highlighted that this is more than double the Revenue Service’s initial estimate of R5 billion to R6 billion.
Speaking at an Allan Gray webinar, Kieswetter added that about 2.4 million fund members have withdrawn over R43 billion since the system was introduced.
Kieswetter noted that this accounts for nearly 40% of the 6.5 million South Africans contributing to retirement funds.
These withdrawals have significantly boosted tax revenues through direct taxes and increased consumer spending through VAT.
However, Kieswetter warned that they represent a troubling depletion of South Africa’s national savings pool.
He stressed that this could have serious long-term effects, particularly on individuals’ financial security in retirement.
He further expressed concern that many withdrawals are funding discretionary spending instead of being used for critical financial emergencies.
However, despite these concerns about spending money on non-essential things, other surveys have noted that debt is a primary concern.
A JustMoney consumer survey of more than 6,000 respondents revealed that 79% intended to use the funds to pay off debt.
Warning of a second wave
Another concern is that a second wave of withdrawals is expected in 2025, with fund managers reporting growing interest from members since the start of the new tax year on 1 March 2025.
Alexforbes, one of the country’s largest retirement fund administrators, has observed a notable spike in member activity.
Vickie Lange, best practice head at Alexforbes, said that during this period, logins to the company’s member portal, AF Connect, exceeded one million.
This is a sharp increase from the roughly 500,000 monthly logins seen in December, January, and February.
Lange explained that this surge suggests that members are actively checking their balances and may consider additional withdrawals during the year.
With this renewed interest, experts are reiterating strong warnings about the risks of dipping into retirement savings too early.
Lange stressed that while the two-pot system can provide critical relief in genuine emergencies, withdrawing funds unnecessarily can have serious consequences.
“Early withdrawals reduce the amount available for retirement, potentially leading to financial insecurity later in life,” she said.
To illustrate the long-term impact of early withdrawals, Leone Hitge, Investment Marketing Manager at Ninety One, compared the retirement savings outcomes of two hypothetical investors.
Assuming each contributed R100,000 annually to their retirement annuity (RA) over 20 years, Hitge modelled their outcomes with a portfolio return of CPI plus 5%.
Investor A, who withdrew all available funds from the savings pot every year, accumulated R2.26 million after 20 years.
In contrast, Investor B, who left their savings untouched, saw their nest egg grow to R3.39 million. This is over R1 million more than the investor who chose to access their savings pot.
Hitge noted that while these figures are for illustrative purposes and do not account for market volatility or investment costs, the difference is still striking.
“In a nutshell, withdrawing all the funds from your savings pot every year can reduce your total retirement portfolio by approximately a third compared to leaving it untouched,” she said.
Hitge added that investors should also not forget about the added tax liability when making a two‑pot withdrawal.
“When you contribute to an RA, you benefit from valuable tax advantages. Your contributions are tax-deductible within certain limits, and the growth on your investment is tax-free,” she explained.
“However, pre-retirement withdrawals from your Savings pot come at a cost. These withdrawals are taxed at your marginal rate, which means you could receive significantly less than the amount you withdraw.”
“In some cases, a withdrawal may even push you into a higher tax bracket, increasing your overall tax burden.”
