From debt relief to used cars: where the Two-Pot money is going
Since the implementation of South Africa’s Two Pot System on September 1, 2024, there has been considerable discussion about how pension fund members are using their withdrawal funds. With R43.4 billion claimed under the Two Pot System from September 2024 to January 2025, financial experts have observed some trends in consumer behaviour.
FAnews spoke to Rob Southey, Head of Investments and Asset Consultants at Momentum Consultants and Actuaries, to unpack these emerging patterns and discuss the implications for financial planning and long-term retirement security.
General sentiment: a mixed view on Two Pot
The sentiment surrounding the Two Pot System is complex. From a consumer’s perspective, particularly for those facing financial pressure or struggling with debt, the Two Pot System is seen as a lifeline. Southey explains, “For consumers under pressure and indebted, this is viewed very positively. For those looking for long-term retirement funding, however, they are indifferent. It provides a source of emergency funding when needed, but any withdrawals will have an impact on the retirement funding.”
For financial advisers, the view is similarly mixed. “It is better for long-term saving to not have access to retirement funding,” says Southey. “However, if a client needs emergency funding or is drowning in debt, it can be a useful source to meet that urgent need, or to pay down the debt - provided the client doesn’t just go straight back into debt again.”
While the Two Pot System can act as a temporary financial cushion, it also raises concerns about its impact on members’ long-term retirement savings. For financial advisers, it’s crucial to balance immediate needs with long-term goals to ensure that clients are not undermining their future financial security.
Spikes in spending: insights into consumer behaviour
One of the most notable trends since the introduction of the Two Pot System is the spike in certain types of spending. In particular, there was a significant increase in used car registrations in October 2024, which reached the highest level since 2012. This appears to indicate that many South Africans have used their withdrawal funds for essential but high-cost purchases, such as vehicles, rather than for discretionary spending or long-term investments.
Debt repayment: a primary reason for withdrawals
Another striking feature of the Two Pot System withdrawals is the role debt repayment plays in how people are using their funds. Data shows a noticeable reduction in certain credit types, including clothing retail accounts, mobile phone contracts, and education loans. However, there has also been an increase in education loans and mobile phone contracts since the initial reduction. This highlights the ongoing debt cycle that many individuals find themselves in, despite accessing their retirement savings.
Financial advisers have a critical role to play in helping clients manage their debt responsibly. “One of the most important ways financial advisers can help their clients is by helping them to set and stick to a budget,” Southey emphasises. “Advisers can assist clients in taking a holistic approach to debt management, ensuring that any withdrawals are used for true financial relief and not to perpetuate an ongoing cycle of borrowing.”
Short-term relief or long-term solution?
The introduction of the Two Pot System has made short-term funding more accessible, but this has implications for financial planning. “Two Pot will have to be seen as another source of short-term funding,” notes Southey. “It may not be optimal, but clients know they can access it and, rightly or wrongly, it needs to form part of a financial plan - even if to state that it won’t be accessed.”
Financial advisers will need to develop strategies that take the Two Pot System into account, even if clients are not planning to access these funds. “Advice obviously needs to be very client-specific,” Southey adds. “For example, while the system might not be ideal for long-term retirement saving, its availability must still be factored into clients' financial plans, especially when dealing with clients facing immediate financial distress.”
Short-term relief and long-term financial security
The absence of a noticeable increase in household savings, despite the significant withdrawals under the Two Pot System, underscores the tension between short-term financial relief and long-term financial security. Many individuals are using these funds for urgent, immediate needs, leaving little room for building long-term savings.
“Without short-term funding being available, individuals in financial difficulty will need to raid their long-term savings,” Southey warns. “This obviously impacts the funding available for retirement, making it harder to secure long-term financial stability.”
This dynamic creates a delicate balance between meeting immediate financial pressures and ensuring that individuals can retire with sufficient savings. Financial advisers must address these competing priorities and help clients understand the implications of their withdrawals for future retirement planning.
Economic pressures and spending decisions
The role of economic pressures in shaping spending decisions is another key consideration. While the Two Pot System has only recently been introduced, the early data shows that the majority of withdrawals are being used for essential needs, rather than for discretionary purchases or investments.
“The current experience from Two Pot withdrawals may change over time,” Southey reflects. “We are starting to see results from the new tax year as people can withdraw from their Savings Pot again. However, data shows that many individuals have already made previous withdrawals, and it will be interesting to see how these patterns evolve.”
As economic conditions change, so too may the way people use their savings. Whether the withdrawals remain focused on basic needs or shift toward discretionary spending will depend on a variety of factors, including potentially on broader economic conditions. Financial advisers must stay attuned to these trends in order to provide relevant guidance to clients.
Empowering members to make informed decisions
One of the key challenges of the Two Pot System is ensuring that pension fund members fully understand the implications of their withdrawals. “There has been much education, but the Two Pot system is complex, so members may only realise the true impact of certain aspects when they make withdrawals,” says Southey. “We tend to earn by experience, not by what someone else tells us.”
As more data becomes available, financial educators can refine their approaches to help individuals make more informed decisions. It is crucial that members not only understand the immediate benefits of the Two Pot System but also appreciate the long-term consequences of accessing their retirement savings prematurely.
Adapting to emerging trends
Policymakers and financial institutions have an opportunity to use early withdrawal trends to refine their approach to financial planning support. “The withdrawal patterns will become clearer and are likely to show differences based on age, income group, gender, etc.,” says Southey. “This can be used to focus attention and education in the areas where it’s most needed.”
Employers, too, may benefit from monitoring Savings Pot withdrawal statistics at the fund level, which could give them insight into the financial stress their employees are experiencing. This could lead to more targeted interventions to assist workers in managing their financial pressures.
While the Two Pot System offers crucial support to those in immediate distress, it also poses risks to long-term financial security. Financial advisers, policymakers, and financial institutions must continue to adapt to this evolving landscape to ensure that individuals can make informed, balanced decisions about their withdrawals and their future financial well-being.
Writer’s thoughts
As the Two Pot System reshapes retirement planning in South Africa, financial advisers are uniquely positioned to guide clients through the trade-offs between immediate relief and long-term security. Advisers can help ensure that short-term decisions don’t derail lifelong financial goals. Please comment below, interact with us on X at @fanews_online or email me your thoughts myra@fanews.co.za
