Two-pot retirement system: balancing needs and long-term security

The challenge of the two-pot retirement system is to balance consumers’ immediate needs and their long-term security.

Systemic issues such as high living costs and stagnant wages mean that many consumers may continue to prioritise immediate needs over long-term security.

Financial inclusion is often seen as a question of whether people have a bank account or whether Small, Medium, and Micro Enterprises can access loans, Schalk Fischer, insurance vertical sales leader at TransUnion Africa, says.

“These questions are at the surface and represent only part of a larger issue. To advance financial inclusion in South Africa, industries such as financial services, retail, telecommunication, automotive and agriculture must broaden this vision to genuinely empower individuals and communities.

“South Africa has made notable strides in this area, as outlined in the National Treasury’s framework, An Inclusive Financial Sector for All. The framework reports that while 91% of South African adults have access to formal financial products and services, around 3.6 million remain excluded.

“Even among the included, effective use of formal financial products remain limited, underscoring the need for a broader range of accessible financial tools to foster comprehensive financial inclusion.”

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Two-pot retirement system shows economic challenges consumers face

He says the recently introduced two-pot retirement system is a case in point. Designed to address the issue of early retirement savings withdrawals, the system divides retirement savings into two pots, one for short-term needs and another for long-term preservation.

By 18 November, just over two months since the launch of the two-pot retirement system in September, Sars had issued over 1.9 million directives to the value of over R35 billion under this system.

Fischer says the steady increase in applications highlights the economic challenges many households face and the importance of the two-pot retirement system for meeting urgent needs. With the two-pot system allowing consumers a single withdrawal per tax year, the second wave of applications is expected to start in March 2025, with drawdown estimates ranging from R50 billion to R60 billion.

Does early access to retirement funds provide a lifeline or a potential pitfall for underserved communities? Fischer says while the two-pot retirement system can meet immediate needs, misuse of these funds, especially for non-essential purchases, can undermine long-term financial stability.

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Mostly low-income consumers use the two-pot retirement system

Data from Discovery shows that nearly 40% of low-income earners (earning under R125 000 per year) withdrew funds, compared to only 4% of high-income earners (earning over R1 million per year).

“An additional concern is that when large amounts of money and transactions are involved, it creates a significant incentive for fraud. To efficiently mitigate these risks, industry players need a comprehensive approach that combines robust processes, advanced fraud detection systems and strengthened identity verification and authentication practices.”

In addition, he says, clear fraud prevention policies, industry collaboration and fraud awareness programmes to regularly educate consumers are essential in creating more awareness and guarding against possible exploitation.

“Financial inclusion is not only about availability and access to financial products but also about equipping people with the tools and knowledge they need to make wise financial decisions. Addressing these challenges requires expanding financial inclusion efforts to include financial education, digital accessibility, inclusive product design and creating more effective cross-sector collaboration.”

Fischer says effective financial literacy programmes should cater for specific consumer needs. “Some consumers would benefit from programmes that prioritise basic financial products and skills, such as budgeting, saving and building a financial track record.

“Others may benefit from access to insights on investing, retirement planning and risk management. By understanding and addressing the unique needs of consumers, financial inclusion initiatives can empower people to make informed choices that support both short-term well-being and long-term security.”

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Meaningful financial inclusion is everybody’s responsibility

He points out that achieving meaningful financial inclusion is not the responsibility of any one stakeholder alone. “It requires broad collaboration. Partnerships between government, financial institutions, fintech companies, credit bureaus and industry bodies, are essential.

“Government policies can support financial literacy and digital inclusion initiatives, while TransUnion as a data and insights provider, can provide actionable data to guide the design of products and initiatives for maximum impact.

“Fintech companies can develop innovative solutions that simplify access to financial products, while banks and financial institutions provide the infrastructure necessary to make these products widely available.”

Fischer says each of these stakeholders brings unique strengths and expertise, creating a well-rounded approach to financial inclusion. “By working together, we can create sustainable solutions that address the needs of South Africa’s diverse communities.

“Financial inclusion is a journey, not a destination. While access to basic financial products is foundational, a truly inclusive vision must address a broader spectrum of challenges and opportunities.

“Moving forward, the focus should be on financial education and literacy, digital accessibility, product inclusivity and strategic partnerships. These elements form the pillars of a financial system that serves all South Africans, providing not only access but genuine empowerment.”