Understanding South Africa's Two-Pot System: Insights from Alexforbes' Survey on Savings Withdrawal Trends

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Understanding South Africa's Two-Pot System: Insights from Alexforbes' Survey on Savings Withdrawal Trends



In September 2024, South Africa introduced the two-pot retirement system, a significant reform aimed at enhancing financial security for retirement fund members. This system divides retirement savings into two components: a savings pot, accessible before retirement, and a retirement pot, accessible only upon retirement. Alexforbes, a leading financial services group, has provided valuable insights into how South Africans are engaging with this new system, particularly concerning savings withdrawals.

The Two-Pot System: An Overview

The two-pot system was designed to balance immediate financial needs with long-term retirement savings. Upon its implementation on September 1, 2024, members could access a portion of their retirement savings through the savings pot, while the retirement pot remained locked until retirement age. This structure aimed to provide financial relief during emergencies without compromising future retirement income.

Alexforbes' Survey Findings

Alexforbes conducted a comprehensive survey to understand member engagement with the two-pot system. The survey included over 8,200 responses and data analysis covering more than one million members. The findings offer a detailed look into the behaviors and attitudes of South Africans regarding the new system.

Withdrawal Trends

By the end of January 2025, Alexforbes reported receiving over 370,000 claims for savings benefit withdrawals, totaling R7 billion, including taxes and fees. This amount represents approximately 1.2% of the retirement assets under administration. The high volume of claims underscores the immediate financial needs of many South Africans.

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Demographic Insights

The survey revealed that 54% of respondents chose to access their savings component, indicating a preference for addressing short-term financial needs. Conversely, 46% opted to preserve their retirement savings, reflecting informed decision-making. Notably, 76% of claims came from members aged 31 to 51, a demographic often balancing significant financial responsibilities. Additionally, 59% of claims were from individuals with fund credits under R250,000, and 94% were from those earning less than R550,000, highlighting the financial challenges faced by these groups.

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Utilization of Withdrawn Funds

The survey also examined how members utilized their withdrawn funds. A substantial 80% directed their funds towards debt repayment and essential living expenses, with 50% specifically repaying debt and 30% covering vital costs. Other uses included major purchases (13%) and investments such as home improvements, medical bills, education, and vehicle maintenance (7%). These findings indicate that members are prioritizing financial stability when accessing their savings.

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Member Sentiment and Future Intentions

Member sentiment towards the two-pot system has been largely positive. An impressive 86% of claimants reported satisfaction with their decision to access their savings, while 96% understood the long-term impact and tax implications associated with their withdrawals. Looking ahead, 47% of members intend to make future claims, with 34% of those who have already claimed planning to do so again. Among those who initially refrained, 33% are confident they won’t claim in the future, and 13% are still contemplating it.

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Sectoral Distribution of Claims

Claims have been distributed across various sectors, reflecting the widespread financial challenges faced by South Africans. The distribution is as follows:

  • Wholesale and retail trade: 24%
  • Mining: 10%
  • Manufacturing: 9%
  • Professional and business services: 2%
  • Other industries: 2% to 8%

This distribution highlights the diverse sectors where employees are seeking financial relief through the two-pot system.

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Role of Workplace Resources and Advisory Services

The survey highlighted the critical role of workplace resources and trusted advice in members' decision-making processes. Sixty percent of members accessed essential information through their workplace, primarily via Alexforbes’s My Money Matters toolkit. Half turned to professional advisory services, while media channels, including social media, provided insights for 32% of respondents. Thirteen percent relied on advice from family and friends. This indicates that members are utilizing a variety of sources to inform their decisions regarding the two-pot system.

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Digital Engagement and Support

Digital engagement has been a key pillar of the system’s success. The My Money Matters toolkit garnered more than 550,000 views and 1.8 million interactions, while the AF Connect member portal recorded more than four million logins. Additionally, webinars attracted 20,000 participants, and call centers managed 259,000 calls and emails, ensuring that members received timely information and support.

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Implications for Financial Planning

The high volume of withdrawals and the significant portion directed towards debt repayment and essential expenses underscore the importance of financial planning and education. While the two-pot system provides immediate financial relief, it also highlights the need for long-term financial strategies to ensure retirement security. Financial advisors and institutions must continue to offer guidance to help individuals balance short-term needs with long-term financial goals.

Conclusion

The two-pot system represents a pivotal shift in South Africa's retirement savings landscape, offering members greater flexibility to manage immediate financial needs while aiming to preserve retirement income. Alexforbes' survey provides valuable insights into how South Africans are engaging with this system, highlighting the balance between short-term financial relief and long-term retirement planning. As the system continues to evolve, ongoing research and member feedback will be essential to refine and enhance its effectiveness in supporting the financial well-being of South Africans.

*Source: Alexforbes reports R7 billion in two-pot

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