South Africans are primarily accessing their Two-Pot savings to manage short-term debt and cover home or car expenses, according to Discovery Corporate and Employee Benefits.
The data draws from the experiences of over one million employees across 3,000 employer groups who utilised withdrawal requests via a WhatsApp channel.
Discovery said as anticipated by the industry, settling short-term debt emerged as a key motivator for withdrawals, with 21% of claimants citing this reason. Topping the list, however, was the need to address home or car expenses, accounting for 24% of requests. Guy Chennells, Chief Commercial Officer at Discovery Corporate and Employee Benefits, commented on these findings, highlighting the financial strains driving these crucial decisions.
“We found it surprising that a big group of claimants (20%) was using the extra money for education, presumably in the majority of cases for children’s school fees, as well as for day-to-day expenses (11%). Sadly, these are all indications of the cost-of-living crisis faced by so many,” he said.
The Two-Pot retirement system, introduced in September 2024, aims to support South Africans in maintaining their retirement investments by allowing access to one-third of their savings for immediate needs while safeguarding the remaining funds for long-term security. The system's primary goal is to keep individuals invested until retirement, rather than permitting full withdrawals upon changing employment.
Adding depth to the withdrawal reasons, Chennells said that 17% of claimants who selected the 'Other' category frequently detailed their reasons as home improvements and renovations. Although such expenditures do not classify as emergencies, they reflect the difficult economic choices many South Africans face.
Interestingly, only 1% of claimants used their savings for travel, suggesting a collective focus on essential, rather than discretionary, spending. The rapid uptake of the Two-Pot system saw Discovery processing claims at 180 times the usual daily volume on its launch day, facilitated through a secure web, app, and WhatsApp channel designed for efficiency and ease.
Chennells said processing speed has been crucial, with 29% of payments made within three days of submission, 84% within four days, and 99% within five days. The preferred digital submission channels saw 75% of claimants opting for the web or app route, a statistic that remained consistent across different age groups but varied significantly with income. Lower-income members predominantly used WhatsApp, whereas higher-income members preferred web-based submissions.
The data further indicated that individuals aged 35 to 45 recorded the highest rate of withdrawals, making up 27% of the total eligible claimants. This age group is often balancing the financial responsibilities of young dependents and elderly parents, exacerbated by high inflation and rising living costs.
Eligibility for Two-Pot withdrawals showed distinct variations by age and income. Over 45% of those under 35 and 71% of those aged 35 to 55 were eligible to withdraw, while only 34% of low-income earners qualified. Higher-income groups saw substantially higher rates of eligibility.
Despite the high initial volume of withdrawals, only 22% of eligible members have utilised their funds, a number Chennells hopes will reflect informed decision-making.
“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,” Chennells said.
With potential spikes in withdrawals expected around Black Friday, Christmas, and the start of the new school year, it remains crucial for South Africans to approach their Two-Pot savings with prudence, reserving them for genuine emergencies, said Chennells.
PERSONAL FINANCE