South African retirement fund members have withdrawn nearly R57 billion from their savings since the implementation of the 2-pot retirement system in September 2024. The total tax collected from those withdrawals amounted to around R15 billion.

Why are people withdrawing early from retirement funds?

According to the South African Revenue Service (SARS), almost 500,000 of the nearly 4 million withdrawals made so far were repeat withdrawals – in other words, members withdrew for the second time in 2025 when the next annual withdrawal was allowed. The number of repeat withdrawals indicates a cost-of-living crisis.

A 2025 corporate survey of 2-pot withdrawals found that nearly 8 out of 10 employees who had accessed their savings pot did so either to repay debt or to cover basic living costs. Of those surveyed, 45% used the funds to service loans, while 35% withdrew to cover essentials like groceries, school fees, and housing.

Economic pressures leading to early withdrawals

The ideal solution to protect your retirement savings is to have money saved in an emergency fund, amounting to 3 to 6 months' income. Having this fund means that you don't have to dip into your retirement savings for unexpected, urgent expenses, so your retirement portfolio will continue to earn interest and grow at the rate you expect.

The high level of early withdrawals from retirement savings since the introduction of the system indicates that many South Africans don't have enough left from the daily financial struggle to build emergency savings. Many of us are dipping into our long-term retirement investments just to make ends meet. Some claim this is a flaw in the 2-pot system, because it allows you to deplete your long-term retirement savings through the annual withdrawal.

However, you might see it as a balance between preparing for the future and meeting your financial needs today. Before the 2-pot system, if you hit a financial crisis that forced you to dip into your retirement investments early to survive, you could not do so unless you resigned from your job. The 2-pot system at least compels you to preserve two-thirds of your retirement fund, to be converted to an annuity when you retire. Only one-third of your pension contribution is allocated to your savings pot, which you can access once a year until retirement. 

The importance of financial literacy in retirement planning

In February 2025, the National Treasury announced that it is considering allowing you to access a portion of your retirement savings if you are retrenched, subject to strict conditions – including proof that you have no other source of income after a specified period. As of March 2026, the proposal – to allow retrenched individuals to access a limited portion of only the retirement component of their retirement savings – was still under consideration and had not yet been implemented.  

Retrenched workers withdrawing their entire pension funds could have a negative impact on the 2-pot policy's aim of ensuring that two-thirds of pension fund contributions are preserved. The sheer volume of withdrawals made so far also shows that many retirement fund members aren't aligned with the system's long-term intention, which is to preserve the bulk of pension savings for retirement age. The average withdrawal amount from the savings pot is around R6,000, which suggests people are withdrawing the past few months’ contributions because of immediate financial need.

This obviously has a negative effect on your ability to grow your retirement savings over the long term. There are no real safeguards against making these withdrawals in the current 2-pot system, which points to a real need for financial education. Are you fully aware of the long-term and tax impact of using your retirement savings in this way? The most important of these is that many retirement fund members are unaware of the tax paid on a withdrawal from your savings pot – they are taxed as income at your marginal rate of tax. This means that retirement fund members can pay up to 45% tax, which is substantially higher than the withdrawal retirement fund table.

Long-term effects of early retirement fund withdrawals

A recent example shows the dilemma many people have. A woman made a withdrawal from her own retirement savings pot to pay her child’s school fees. She'd worked out that if she paid it back into her fund in the form of contributions, although it cost her in lost returns, the loss would be less than the interest on a conventional loan.

Bear in mind, however, that even if she pays back the full amount withdrawn over the year in extra contributions, she will still retire with less than she could have. The months when her balance is lower than it should've been will reduce the total amount of interest that her investments will earn in the long term.

Financial education is essential if you're unaware of the financial consequences of withdrawing from your retirement savings. It's worth getting professional advice to improve your financial literacy in the following areas:

• Any information your employer offers about everyday money management, budgeting, and debt literacy.
• Debt assistance.
• How to apply for debt review when you're over-indebted, and what that implies.

Learn more about financial literacy and how Nedbank can help with financial planning and guidance on all aspects of your money management, from debt to investments.