Paying off short-term debt and settling home or car expenses are main reasons that people are withdrawing from the two-pot retirement system. Picture: Steve Buissinne/Pixabay
The need for extra cash to settle short-term debt and paying off home or car expenses are the main reasons that people are making withdrawals from the two-pot retirement system.
This is according to the Discovery Corporate and Employee Benefits’ pension and provident fund business.
The two-pot retirement system which was implemented on September 1, 2024 gives people access to one-third of their retirement savings while stopping them from withdrawing from their retirement funds when changing jobs.
Guy Chennells, Chief Commercial Officer, Discovery Corporate and Employee Benefits said that the data was gathered from individuals who submitted withdrawal requests via WhatsApp.
According to Discovery, these are the reason people are making withdrawals:
– resolve home or car expenses (24%)
– need to pay off short-term debt (21%)
– paying of education, mostly for children’s school fees (20%)
– day-to-day expenses (11%)
– other (17%)
– travel (1%)
For the claimants that chose the ‘Other’ category as the reason for their withdrawal, majority of them said that they would use the money for home improvements and renovations.
Chennells said: “This isn’t really recommended as a good use of two-pot savings because it does not truly classify as emergency spending.”
“It’s still understandable, though, because South Africans who want to improve their lives are simply unable to create discretionary spending from their regular income at the moment.”
According to Discovery, of the claimants who were eligible to withdraw, 22% opted to make a withdrawal during September.
If the middle-aged people split into two separate age groups of 35 and 45, as well as 45 and 55, people who are aged between 35 and 45 years old have had the highest number of withdrawals from their retirement savings (27% of those eligible).
Of the 22% of total withdrawals recorded during September, it’s interesting to note the range of withdrawal rates that Discovery’s Corporate and Employee Benefits’ data set highlights a range:
“By age alone, withdrawal rates were similar for the young and middle-aged (around 25%), but about half that for the over 55 group (13%),” Chennells said.
“Income was a much stronger driver of withdrawal rates with low-income claimants at 38%, middle-income at 29%, high income at 12%, and very high-income claimants at just 4%.”
According to Discovery, a few claimants experienced challenges because as a result of small errors in the details.
For example, William was spelled ‘Willliam’ (with an extra ‘l’), causing the Home Affairs verification system to reject an application.
Chennells said: “Discrepancies between details on our system compared with the employers’ or Sars systems also caused a few problems. But these learnings have helped us grow building new rules into our systems to avoid any future hold-ups.”
Chennells said that withdrawal rates during September should be understood within the context that many people did not qualify for a withdrawal for two key reasons:
– If there was less than R2000 in their savings account from the seeding, claimants were not allowed to withdraw; and
– If claimants are in the over-55 age category, they must physically opt in to the Two-Pot regime before 1 September 2025 for their seeding to occur.
Discovery’s data revealed the eligibility claimants to make a two-pot:
– 45% of those below the age of 35 qualified
– 71% of those between 35 and 55 (middle-aged) qualified
– 61% of those over 55 were eligible.
– for those over 55, a further 20% would have enough savings to qualify if they opted in for the two-pot retirement system.
This is the income breakdown for eligibility:
– Of those earning R125,000 per year or less (low-income), only 34% were eligible.
– Of the middle-income group (R125,000 to R500,000 per year), 67% qualified
– 83% of the high-income group (R500,000 to R1 million per year)
– 90% of the very high-income group (above R1 million per year) qualified.
Chennells said: “So far, Two-Pot withdrawals have been lower than our team expected, and we hope that some of this is due to people changing their minds about dipping into their retirement savings.”
“Understanding other options for short term capital, or how much more you will have to contribute to your fund later if you withdraw, or how much you will lose to tax, has proved critical in helping people make the right decisions.”
IOL Business