Two years after South Africa introduced the two-pot retirement system, financial experts are warning that frequent withdrawals could leave many workers financially vulnerable in retirement.
The two-pot retirement system, which came into effect in 2024, allows retirement fund members to access a portion of their savings before retirement while preserving the majority of their pension for later life.
Under the system, retirement savings are divided into two components: a savings pot, from which members can make limited withdrawals before retirement, and a retirement pot, which holds at least two-thirds of accumulated savings and can only be accessed upon retirement.
According to Thys van Zyl, Chief Executive Officer of Everest Advisory Services, public debate has largely overlooked the system's primary purpose.
He said the reform was introduced to address the financial challenges faced by many South Africans who previously had little or no access to retirement savings unless they resigned from their jobs.
However, Van Zyl cautioned that the biggest danger lies in people beginning to treat their retirement savings as ordinary bank accounts rather than long-term investments.
"The real risk emerges when retirement savings are viewed as an easy source of cash rather than money specifically set aside to fund retirement," he said.
While acknowledging that the savings component provides valuable financial relief during emergencies, Van Zyl stressed that every withdrawal comes at a long-term cost.
He explained that withdrawing money not only reduces the amount saved but also removes the opportunity for those funds to grow through compound interest over time.
Van Zyl warned that the greatest threat to retirement security is often not a single large withdrawal, but a pattern of repeated smaller withdrawals that gradually erode retirement savings over many years.
He noted that while individual withdrawals may appear insignificant, their cumulative effect can substantially reduce the amount available at retirement.
Drawing on international experience, Van Zyl pointed to Chile, where workers were permitted to access significant portions of their pension savings during the COVID-19 pandemic to ease financial hardship.
He said many Chileans depleted large portions of their retirement savings, resulting in reduced pension incomes and forcing the government to increase financial support for retirees.
Van Zyl said South Africans, particularly those approaching retirement age, should carefully consider the long-term consequences of accessing their retirement savings.
He noted that many older workers have already experienced setbacks due to changing jobs, interrupted contributions or economic hardship, leaving them with less time to rebuild their retirement funds through investment growth.
He called for greater financial literacy, stronger incentives to preserve retirement savings and policies that encourage higher levels of long-term saving.
"The objective is not to deny people access to their savings, but to ensure that short-term financial relief does not ultimately create long-term financial insecurity," Van Zyl said.