The long-awaited two-pot retirement system has officially kicked off, and it’s been like the payday queues at the grocery store. Since its launch on 1 September, a flood of withdrawal requests has left retirement fund administrators scrambling to keep up.
As soon as the new system went live, retirement funds saw a tidal wave of withdrawal requests. Sanlam, for example, had its WhatsApp line going into overdrive with over 84,000 messages by midday on 3 September. That’s a huge jump from their usual 18,000 messages a day. Old Mutual wasn’t far behind, with 93,000 people engaging through their WhatsApp channel and thousands more calling in.
The flood of requests highlights a clear desire among South Africans to access their retirement savings. This trend is especially notable in the face of pressing financial needs, with some members even queuing at employer offices to get their hands on their funds. However, while the rush is evident, not all funds see the same activity level. For instance, Momentum Investo’s retail business reported withdrawal submissions equal to only 0.3% of their in-force retirement contracts, indicating a varied response across different sectors.
Understanding the Two-Pot system
So, what’s this two-pot system everyone’s talking about? It splits your retirement savings into two parts: a savings pot and a retirement pot. You can access the savings pot more easily, while the retirement pot is meant for long-term savings.
You can withdraw up to R30,000 from the savings pot as a one-time “seeding capital” withdrawal. But there’s no cap on how much you can pull from the savings pot in total—just a limit of one withdrawal per tax year. It’s a bit of a mix-up, but it’s important to remember there’s no annual limit beyond this.
When you do withdraw, keep an eye on the tax implications. Any money taken from the savings pot will be added to your taxable income for the year. This could push you into a higher tax bracket, which means you might end up with a bigger tax bill than you expected.
Read more about the Two-Pot retirement system here.
What’s happening next?
Different financial institutions are handling the rush in their own ways. Old Mutual is rolling out its withdrawal process in phases. Until 22 September, you can check your balances and get an estimate of taxes through its WhatsApp channel. Actual withdrawals will start on 23 September. Discovery is taking a more measured approach, too, with retail withdrawals starting on 8 September and corporate withdrawals starting on 16 September.
Expect some delays, especially if your funds are through an employer. It might take several weeks to get everything sorted, so be prepared for a bit of a wait. Also, ensure your applications are complete and correct—funds can’t be processed until the South African Revenue Service (SARS) gives the green light.
Think before you withdraw
With the excitement of accessing funds, it’s easy to overlook the long-term impact. Financial experts are stressing the importance of careful planning. While the two-pot system offers flexibility, balancing short-term needs with future retirement security is crucial.
According to Nzwananai Shoniwa, Managing Executive at Sanlam, and Koketso Mahlalela, Head of Member-led Outcomes, research shows that many people are looking to use their withdrawals for living expenses, paying off debt, or other immediate needs. But before you make a move, it’s wise to chat with a financial advisor to understand the full tax impact and how your decision fits into your long-term financial plan.
Additionally, SARS will deduct any outstanding tax debt from the amount withdrawn before the funds are disbursed to the member. This means that the actual amount received by the member could be reduced if there are any tax arrears.
The two-pot system is a big change for South Africa, offering immediate access and long-term savings. As everyone adjusts to the new system, having the right guidance and making informed choices will be key to making the most of these changes.
