South Africans have welcomed the implementation of the two-pot retirement system, which officially came into effect on 1 September 2024. As one of the leading players in the financial services sector, Liberty has already paid out more than R600 million to eligible retirement fund members, offering a crucial financial lifeline during tough economic times.
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The two-pot system: What it means for South Africans
The two-pot retirement model aims to give South Africans easier access to part of their retirement savings without sacrificing long-term security. Under this system:
Members contribute one-third of their savings to a “savings pot”, which they can access once per tax year for emergencies or urgent needs.
The remaining two-thirds go into a “retirement pot”, which remains untouched until the member reaches retirement age.
To help launch the system, members could transfer up to R25,000 from their existing savings into the savings pot as a once-off seed capital. This amount became available for immediate withdrawal.
Liberty’s payout breakdown
Liberty reports that the rollout has seen a surge in withdrawal applications. Across its corporate retirement funds, over 62,000 claims were lodged, with more than 48,000 successfully processed, resulting in over R600 million paid out to members.
On the retail side, Liberty processed around 35,000 claims, with 15,829 applications being approved. These payouts totaled an additional R212 million, showing the widespread impact of the reform across different fund types.
Who’s withdrawing – and why?
Most withdrawals came from individuals aged 30 to 50, with the highest number of approved claims from those in their 40s. This age group is often dealing with bond payments, education costs, and other financial responsibilities, making access to retirement savings a helpful financial buffer.
However, not everyone received the full value of their withdrawal. Liberty confirmed that:
6% of successful withdrawals had IT88 deductions meaning SARS retained a portion to cover unpaid taxes.
In 2% of these cases, the full withdrawal amount went directly to SARS, leaving members with no cash in hand.
Tax and admin fees: What to know
Withdrawals from the savings pot are taxable at your marginal tax rate. For example, a withdrawal request of R57,700 could result in a tax deduction of around R17,887, leaving the member with just over R39,800 in their account.
Besides the tax deductions, most retirement administrators, including Liberty, charge a processing fee for each claim typically around R320.
A look at the bigger picture
Liberty isn’t the only administrator seeing high demand. Industry-wide, major players like Old Mutual and AlexForbes have also paid out billions. Old Mutual processed over 306,000 applications, disbursing more than R3.6 billion, while AlexForbes handled over 370,000 claims, totaling R7 billion.
This nationwide response highlights how crucial the two-pot system is in helping South Africans meet their short-term financial needs especially as the cost of living continues to rise.
Use it wisely, experts warn
While the ability to access a portion of retirement savings can be helpful, financial planners urge caution. Dipping into your savings too often may hurt your retirement security in the long run. The key, they say, is to only withdraw when absolutely necessary and to have a plan in place for future financial goals.
The over R600 million paid out by Liberty marks a significant moment in the early stages of South Africa’s two-pot retirement system. As more members apply for withdrawals and more funds are paid out, the focus will now shift to financial education and ensuring that members are making informed decisions that balance their present needs with future financial security.
This shift may just be the beginning of a broader transformation in how South Africans plan for and manage their retirement.