Almost nineteen months after the introduction of South Africa’s two-pot retirement system on 1 September 2024, a troubling pattern is emerging—one that should concern employers, policymakers, and employees alike.

In just over a year since two pot was implemented to give employees early access to a portion of their retirement savings, more than R57-billion had been withdrawn under the two-pot system, while the South African Revenue Service (Sars) has already collected approximately R15-billion in tax from these transactions alone. In addition, debt retained from those withdrawals was just short of R1-billion.

This means that roughly one quarter of every withdrawal never reaches employees, reinforcing the cycle of “contribute, withdraw, tax, repeat.”

What was intended as a balanced solution to preserve long-term savings while allowing limited short-term access, may, in practice, be creating a self-defeating cycle.

What was designed to protect retirement is quietly becoming a mechanism that erodes it through contributing, withdrawing, getting taxed, starting again worse off than before.

A System Under Pressure

South Africa has never been a strong savings economy. The reality is visible every month in the long queues for social grants, where millions rely on state support due to insufficient retirement provision.

But the current withdrawal patterns under the two-pot system are not simply a reflection of poor financial discipline. They are something far more concerning: a signal of financial distress.

Too many employees are not accessing their savings because they want to, but because they have to.

• Fuel prices continue to surge, driven by global instability 
• Medical aid contributions are increasing above inflation 
• Electricity and basic living costs are rising relentlessly 
• Tax bracket creep has quietly reduced real take-home pay 

For many employees, disposable income has all but disappeared. And so, the “savings pot” has become something it was never meant to be: a pressure valve for inadequate net pay.

You Cannot Solve a Cashflow Problem with a Retirement Solution

This is the fundamental flaw. Retirement savings are used to solve short-term liquidity issues—an approach that is economically inefficient and personally destructive.

When an employee withdraws, the funds previously tax deductible now become fully taxable and often at a higher marginal tax rate due to bracket creep. In addition, administration fees are deducted reducing the net benefit further and Sars taking the “first slice” should the employee have any outstanding tax liabilities.

The result? In some cases, employees receive little, if anything, after deductions.

At the same time, the long-term consequences are severe: Retirement capital is permanently reduced not to mention the lost growth and compounding that cannot be recovered whilst future financial security is compromised. This is not just leakage, but structural erosion of wealth.

The Hidden Cost to Employers

This cycle does not only impact employees. It also has direct consequences for employers:

• Increased financial stress experienced by employees leads to reduced productivity; 
• Higher withdrawal behaviour signals deeper remuneration misalignment to the employees’ day to day reality; and
• Retention risks escalate in an already competitive talent market. 

In a “war for talent,” organisations cannot afford to ignore the financial reality their employees face daily. Financial distress is no longer a personal issue, but a business risk.

A Call to Action: Rethink Remuneration

Employers now face a critical question of whether their current remuneration structure actually works in today’s economy.

Rigid, benefit-heavy, and inflexible traditional models may no longer be fit for purpose. There is a growing case for a fundamental shift to move toward Cost-to-Company (CTC) with flexibility.

A well-designed CTC model with flexible benefits can empower employees to tailor their retirement contributions to their reality. In addition, they will be able to optimise their net pay without compromising their savings for their retirement and thereby reducing their reliance on these emergency withdrawals, by aligning to what the employee actually needs.

Instead of forcing contributions that are later withdrawn (and heavily taxed), employers can create intentional, sustainable structures that balance the employee’s immediate financial wellbeing as well as supporting their long-term financial security.

The Real Cost of Standing Still

If nothing changes, the cycle will continue: Employees will keep contributing → withdrawing → being taxed → and falling further behind. And in this process, Sars benefits, Administrators benefit and ultimately the employees lose.

Final Thought

It is tempting to blame the two-pot system. But that would be missing the point.

The two-pot system is not the problem. It is exposing the problem. Employees are not failing to save. They are struggling to make ends meet. In trying to survive today, employees are unintentionally funding Sars and eroding their own future wealth. 

Until remuneration structures evolve to reflect economic reality, retirement outcomes will continue to fall short—no matter how well-designed the system is.

Written by Tanya Tosen, Tax and Remuneration Specialist at Tax Consulting SA