The Two-Pot system allows participants in pension funds and annuity plans to access a portion of their accumulated funds during difficult times. While withdrawing funds may cover urgent expenses, it entails tax obligations and long-term costs.
Demand for this option has been significant: according to SARS, by January 2025, over two million taxpayers had withdrawn a gross amount of R43.4 billion from their Savings Components. Many used these funds to pay off debts or cover household needs.
It is important to remember that withdrawals should not become an annual financial lifeline. SARS taxes them as income at the participant's marginal rate, and administrators may charge fees. The actual payout amount may be significantly less than requested.
The Financial Sector Conduct Authority (FSCA) acknowledges that emergencies can make access to funds necessary. To avoid further financial strain, it is recommended to understand the likely deductions before applying.
For example, Sophie, who was unexpectedly hospitalized, requested R30,000 to cover medical bills but only received R18,700. SARS withheld R10,800 at her marginal rate of 36%, and her administrator charged a fee of R500. Members of the Two-Pot system should use the calculator provided by SARS to estimate the net payout amount before submitting an application.
Taxes and levies can leave a household in a difficult position during a crisis. Furthermore, withdrawing funds reduces future investment growth.
How the Two-Pot system shapes your finances
Contributions made by you and your employer are distributed across three components:
- Savings Component: One third (33.3%) of current contributions goes here. Participants can withdraw no less than R2,000 once per tax year, subject to tax limits and fees. For instance, a member earning R22,000 per month and contributing about R6,000 (27.5%) would allocate approximately R2,000 here and R4,000 to the Pension Component.
- Pension Component: Two thirds (66.7%) of current contributions go into this component. It is saved for retirement and cannot be withdrawn early; upon retirement, it must be used to purchase an annuity.
- Accumulation Component: This refers to savings accumulated before August 31, 2024, which remain under outdated rules. With the implementation on September 1, 2024, 10% of existing pension savings were transferred to top up the Savings Component, with a limit of R30,000 per fund.
The true cost of early access
Early access can affect your financial situation in two ways: through immediate deductions and through lost investment growth.
The tax hit
Withdrawals from the Savings Component are taxed as ordinary income at your marginal rate, which ranges from 18% to 45%, and may be accompanied by administrative charges. These are not tax-free funds. In Sophie's case, almost 40% of the requested R30,000 went to taxes and fees before she received the money.
Loss of compound growth
Compound growth occurs when investment returns also generate income. Consider a 35-year-old earning R35,000 per month who withdraws R10,000 from the Savings Component. After the estimated SARS tax of R2,945, the member receives R6,555. If the R10,000 had remained invested at an assumed annual growth rate of 7%, it could have grown to approximately R19,672 in 10 years, R38,697 in 20 years, and R76,123 by age 65.
Thus, withdrawing funds costs more than just the amount taken today: it also means foregoing the potential growth of the entire R10,000. These figures are illustrations; actual returns and taxes depend on individual circumstances.
Financial well-being and protecting what you've earned
Financial well-being implies meeting present needs while simultaneously protecting future independence. A 2024 study by K. Pretorius at the University of the Western Cape showed that elderly Black South Africans associate successful retirement with meeting medical needs, maintaining health, and living without financial stress. This was a qualitative study on the perception of successful retirement among elderly Black South Africans.
Retirement security also depends on contributions being made to your fund. Some employers deduct contributions from salaries but fail to remit them. Regularly check your fund statements and reconcile them with your payslip.
The FSCA publishes lists of employers reported by pension funds for non-remittance. Its communication of July 2, 2026, defines non-compliant employers based on the duration and severity of the arrears.
How to protect your pension savings
- Reconcile your monthly payslip with the benefit statement or confirm contributions with the fund administrator.
- Contact your employer's HR or accounting department, as well as the fund principal, regarding any unpaid amounts.
- If the issue remains unresolved, lodge a complaint with the Pension Funds Adjudicator (OPFA) or contact the FSCA query department.
- Report missing contributions as soon as you notice them.
Building true long-term sustainability
The Two-Pot system provides controlled access while keeping most contributions reserved for retirement. If pressure makes withdrawal necessary, consider both the withdrawal amount and future costs.
Before applying, ask yourself: is withdrawal necessary now? Are there other options? Do I understand the taxes, fees, and potential missed gains? Sophie's experience is not a criticism of her decision; it is a reminder to consider these questions before applying.
The cost of living creates real strain, but retiring with insufficient funds can have major long-term consequences. Check your benefit statements, confirm that contributions are going into your fund, and calculate the probable payout before withdrawing. Informed decisions today can help protect your future financial independence.
For information on your Two-Pot savings, consult a financial advisor or retirement planner. If you have a complaint about a pension fund, contact the fund administrator. If you are dissatisfied with the response, you can free of charge escalate the matter to the Pension Funds Adjudicator. Know your pension plan, your rights, and where to direct complaints. Think before you withdraw.