Two-pot retirement system: rather find an alternative than dip into the savings pot

Now that the new financial year has started, pension fund members can again withdraw funds from the savings pot of their retirement savings under the two-pot retirement system, but fund managers warn that this might not be the best idea if you are short of cash.

While this newfound accessibility may seem like a lifeline, financial experts warn that dipping into your retirement savings too soon could lead to financial hardship down the line.

“The ability to access a portion of your retirement savings should not be seen as a quick fix for financial challenges,” Lizl Budhram, head of advice at Old Mutual Personal Finance, says.

“Withdrawing now may ease short-term pressures, but it can significantly reduce the funds available when you need them most: when you retire. In addition, any amount you withdraw will be taxed as income, which means you will get out less than you expect.”

The two-pot retirement system allows pension fund members to withdraw from their savings pots only once per tax year, with a minimum withdrawal of R2 000. Budhram cautions that by March, many members may find that their accumulated balance is smaller than expected and if it is below R2 000, they will not be able to withdraw at all.

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Rather find alternative than withdraw under two-pot retirement system

“Therefore, it may be a better long-term strategy to leave the money invested and allow it to grow over time rather than withdrawing prematurely. You should make financial decisions with your long-term goals in mind, which is why consulting with a financial adviser is essential.”

But what can you do when you need money in an emergency? Rather than tapping into your retirement funds, Budhram suggests that setting up a separate emergency fund is often a far better solution.

“While the two-pot retirement system offers some flexibility, preserving your retirement savings remains key to long-term financial security. Having an independent emergency fund ensures that you have a financial buffer for unexpected expenses without depleting your retirement nest egg.”

A proper emergency fund can ensure a more appropriate investment fund selection as well as more appropriate tax outcomes. Budhram urges pension fund members to consider practical alternatives before withdrawing from their retirement savings, such as reducing and renegotiating your debt, delaying or reducing non-essential expenses, finding small short-term income opportunities or leaning on your network and sharing resources.

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Reduce and renegotiate your debt

If you consider using your retirement savings to pay off debt, think carefully before making that decision. High-interest debt can put a strain on your finances and keep you trapped in a cycle of financial stress, but withdrawing from your savings pot may not be the best solution.

Instead, Budhram says, explore alternative options such as negotiating with your creditors to adjust repayment terms, consolidating your debt to secure a lower interest rate, or switching to more affordable repayment plans.

“Prioritising the most expensive debt first can help you free up more cash flow, making it easier to manage your financial obligations without sacrificing your future retirement security.”

Delay or reduce non-essential expenses

Now is the time to cut back on anything that is not a necessity, Budhram says. Can you pause a subscription, delay a non-urgent payment, or switch to a cheaper option for groceries?

“These small sacrifices free up cash for savings without touching your retirement savings.”

Find small, short-term income opportunities

Quick side gigs can also be an effective way to bridge the financial gap between your regular income and your expenses.

Whether you want to cover a short-term cash flow issue or build a more sustainable income stream, side gigs offer flexible opportunities to generate additional income without a long-term commitment, Budhram says.

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Lean on your network and share resources

Pooling resources with family, friends, or community groups can significantly ease financial pressure. Budhram says you can, for example, arrange carpooling with neighbours or colleagues to reduce transport costs, making commuting more affordable.

“A strong support system not only helps you stretch your budget but also provides valuable resources that can assist in saving money and paying off expensive debt.

“Accessing your savings pot should never be taken lightly. The temptation may be strong, but the consequences of withdrawing funds prematurely could jeopardise your long-term financial well-being.”

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High volume of two-pot retirement system claims

Vickie Lange, head of best practice at Alexforbes, says since the start of the new tax year on 1 March Alexforbes observed a second wave of interest from retirement fund members in checking their balances and submitting savings pot claims, with over 400 000 submitted to Alexforbes between September 2024 and February 2025 during the first wave of withdrawals.

“With the start of the tax year, an initial four-day surge saw 33 000 withdrawal claims sparking concerns that South Africans were dipping back into their savings pots at a rate similar to the first wave in September 2024.

“However, the daily volume of claims since tapered off, with an additional 35 000 claims lodged over the past 14 days. To date Alexforbes successfully paid out 55 000 claims within seven working days, while the remaining claims continue to progress through the claims cycle.”

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Substantial surge in two-pot retirement system withdrawals since 1 March

Lange says the continued interest in the two-pot system is evident from a substantial spike in the logins to the Alexforbes member portal, AF Connect, which exceeded one million during this period compared to approximately 500 000 logins per full month in December, January and February.

“This surge suggests that members are actively checking their balances and may be considering whether to withdraw from their savings pots at some point during the year. While many members are making withdrawals, it is encouraging to see that a large proportion of those who are eligible chosen not to.

“Instead, they are keeping their savings pots invested for retirement or emergencies, the original purpose of the savings pot component. This suggests that the significant efforts by employers, trustees and the industry to educate and support members is having a positive effect.”

Lange says while the savings pot offers members flexibility to manage financial emergencies, Alexforbes urges retirement fund members to carefully assess the long-term consequences of withdrawals.

ALSO READ: Two-pot retirement system: rather set up a separate emergency fund

Alternatives to two-pot retirement system withdrawals

Before withdrawing from the savings pot under the two-pot retirement system, Lange says you should first consider:

#1: Preserving your retirement savings: Withdrawals reduce the amount available for retirement, potentially leading to financial insecurity later in life. Pension fund members should only access these funds in cases of genuine financial emergencies.

#2: Understanding the tax implications: All withdrawals are subject to tax, which could affect your overall tax liability. It is essential to plan accordingly especially given the static income tax tables as recently announced in the budget speech.

#3: Cybersecurity awareness: With heightened withdrawal activity, cybercriminals may increasingly target retirement fund members.

Lange says you can ensure that you are protected by:

• Only using official channels for transactions.
• Never sharing banking details, OTPs or login credentials.
• Verifying the authenticity of any withdrawal-related communication before acting.

ALSO READ: Two-pot retirement system: More than 2.5 million taxpayers withdrew R43 billion

Two-pot retirement system may change

The two-pot retirement system may evolve, Lange says, as the budget speech highlighted the exploration of policy adjustments to potentially allow retrenched members limited access to their retirement pots under strict but still-to-be-determined conditions.

“Currently, retrenched members can access their vested and savings components provided they have not already done so within the same tax year, but not the retirement component as this remains preserved until retirement under the two-pot retirement system.”

Lange says before you submit a claim to withdraw some of your retirement savings under the two-pot retirement system, you should talk to your retirement benefits counsellor about your options.