Two-pot retirement system: fewer early withdrawals, more financial optimism

While many South Africans who are members of pension funds are counting the days until they can withdraw from their savings pot under the two-pot retirement system, research suggests that fewer people plan to dip into their retirement savings early, probably thanks to financial optimism as the economy improves.

According to the 2024 Old Mutual Savings and Investment Monitor that took a deep dive into the two-pot retirement system, the number of working South Africans with retirement savings provision (income between R8 000 and R119 000 per month) who said they were likely to withdraw their savings, dropped significantly by 10%, from 62% in 2023 to 52% in 2024.

Vuyokazi Mabude, head of knowledge and insights at Old Mutual, attributes this encouraging trend to heightened awareness and education about the two-pot retirement system, alongside improved economic conditions.

“This indicates that South Africans are becoming more focused on securing their financial future. Our research shows that people have a better understanding of the importance of saving for retirement and they are feeling more confident about their finances and making smarter decisions.”

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Broader access to financial advice

She says in addition, broader access to financial advice has significantly boosted financial confidence, which was a key finding in this year’s Monitor, leading to more informed and better money decisions.

The Monitor also suggests that confidence in the adequacy of retirement savings affects views on the two-pot retirement system. “Higher confidence appears to also typically correlate with a positive perception of system, while working South Africans who have lower confidence in the adequacy of their retirement savings display greater scepticism.”

Mabude says lower confidence is more common among lower-income groups and individuals younger than 50, who are also more likely to withdraw their retirement savings.

The study also found that respondents who have a better understanding of the two-pot retirement system are more likely to view it in a positive light. “People with a better understanding of the system (57%) tend to appreciate its benefits. Enhancing understanding and confidence in retirement savings can improve perceptions of retirement reforms.”

She says this suggests there is an opportunity to provide additional information, which may guide them to reconsider withdrawing their funds.

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Are people confident that they have saved enough for retirement?

Other interesting findings from the Monitor on the topic of retirement and the two-pot retirement system include:

• Only 26% of working South Africans are ‘very confident’ that they have enough savings for retirement, compared to 38% of higher-income earners, who earn between R60 000 and R119 999 per month.
• Awareness of the two-pot retirement system is highest among people older than 50 (68%), compared to just 51% among people between the ages of 18 and 29.
• Saving for a comfortable retirement continues to be the top savings goal among employed South Africans, followed closely by saving for a rainy day and paying off debt.

Old Mutual remains confident that introducing the two-pot retirement system will result in better outcomes for more South Africans. “Research by Old Mutual Corporate Consultants suggests that over a lifetime of savings in an occupational fund, like a pension or provident fund, a member can expect to save between two to three times more money than in the old system,” says Mabude.

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Two-pot retirement system designed for greater flexibility

“The new system is designed to offer greater flexibility during emergencies while safeguarding long-term savings by preventing members from withdrawing their entire balance, a practice that has proven to be the greatest destroyer of long-term value.”

However, while these changes are promising, much more needs to be done to secure the financial future of the majority of South Africans, Mabude warns.

“After the implementation of the two-pot retirement system, Old Mutual looks forward to collaborating with government and the private sector on the next phase of National Treasury’s retirement industry reform process, to make a comfortable retirement a reality for more people.

“We remain optimistic about the potential of retirement reform to enhance financial security. These insights underscore the need for ongoing financial education to ensure that all South Africans benefit from the reform and achieve a secure financial future.”