Two-Pot Withdrawals: The Long-Term Cost of Accessing Retirement Savings Early
Since 1 September 2024, South Africa’s two-pot retirement system has allowed members of retirement funds to access part of their savings before retirement.
For many people facing financial pressure, this has provided much-needed relief.
But a withdrawal is not free money.
It is a decision to use tomorrow’s retirement income to meet today’s needs.
As the end of the year approaches, bringing festive spending, school fees and January pressures, it is worth understanding what a withdrawal really costs.
A Quick Recap of the Two-Pot System
Under the two-pot system, new retirement contributions are split into components:
The savings component: One-third of contributions. Members can make one withdrawal per tax year, subject to a minimum amount.
The retirement component: Two-thirds of contributions. This must be preserved until retirement and used to provide a retirement income.
The vested component: Savings built up before 1 September 2024, which remain subject to the previous rules.
When the system started, a once-off amount of seed capital was transferred from existing savings into the savings component.
Withdrawals Are Taxed
A withdrawal from the savings component is added to the member’s taxable income for that year and taxed at their marginal tax rate.
Administration fees may also apply.
This means the amount received can be significantly lower than the amount withdrawn, particularly for higher earners.
Members should also be aware that SARS may use a withdrawal to settle any outstanding tax debt.
The Real Cost Is What the Money Could Have Become
The biggest cost of a withdrawal is not the tax.
It is the lost growth.
Money withdrawn today no longer earns investment returns over the years remaining until retirement.
Because returns compound over time, a relatively small withdrawal early in a career can translate into a much larger reduction in retirement savings later.
The younger the member, the larger the long-term cost tends to be.
Repeated Withdrawals Add Up
The system allows one withdrawal per tax year.
For some members, this risks becoming a regular habit, used to cover recurring shortfalls rather than genuine emergencies.
Over a career, repeated withdrawals can significantly reduce the savings component, which was intended to provide flexibility, and leave members with less security in retirement.
As discussed in our article on Retirement Timing Risk, the size and resilience of your retirement capital matters greatly once you begin drawing an income.
When a Withdrawal May Make Sense
There are situations where accessing savings can be a reasonable choice, such as:
- A genuine emergency with no other affordable source of funds
- Avoiding very expensive debt, such as high-interest short-term loans
- Preventing a serious financial crisis, such as losing a home
Even then, it helps to withdraw only what is needed, rather than the maximum available.
Questions to Ask Before Withdrawing
- Is this a genuine emergency, or a want that could be postponed?
- Are there other options, such as emergency savings or negotiating with creditors?
- How much will I actually receive after tax?
- How will this affect my retirement savings over the long term?
- Am I likely to need to withdraw again next year?
Employers Have a Role to Play
For employers, frequent two-pot withdrawals across a workforce may signal wider financial stress.
Financial pressure affects wellbeing, concentration, absenteeism and productivity.
Employers can support employees by:
- Providing access to financial education and counselling
- Explaining how the two-pot system works in clear, simple language
- Encouraging emergency savings outside the retirement fund
- Reviewing whether benefits, such as funeral and health cover, are reducing the need for emergency withdrawals
Build an Emergency Buffer Outside Retirement Savings
The best protection against needing a withdrawal is having accessible savings elsewhere.
Even a small, regular amount set aside in a separate account can reduce reliance on retirement funds when unexpected expenses arise.
Retirement savings work best when they are left to grow.
The 98 Degrees Group Approach
98 Degrees Group works with private clients, employers and institutions to build long-term financial resilience.
We help clients:
- Understand how the two-pot system affects their retirement plan
- Weigh the short-term benefits of a withdrawal against long-term costs
- Develop savings and investment strategies that reduce reliance on early access
- Align retirement planning with broader wealth and risk management
This article is for general information only and does not constitute financial advice. Speak to a qualified financial adviser about your personal circumstances.
Explore our Multi-Managed Portfolio & Wealth Management services.
Access Is a Safety Valve, Not a Strategy
The two-pot system gives members flexibility.
Used carefully, it can help in a genuine emergency.
But every rand withdrawn today is a rand that will not be there when you retire.
