What your annual two-pot withdrawal really costs you

By Kristin Putter*

We’ve all been in that uncomfortable position when unexpected expenses crop up and we’re scrambling to pay for the kids’ overseas school trip, urgent car repairs, or a family emergency. Up until fairly recently the only way to take care of these costs was to use credit.

But now, many South Africans with a retirement fund or annuity are looking to tap into a new source of help when finances are tight: the savings portion of their two-pot retirement funds.

Before September 2024, getting access to your retirement savings while you were still working was generally off the table. Today, a door opens every 1 March that changes the question from “can I?” to “should I?”.

Two years since the two-pot system was introduced, industry statistics are painting a worrying picture as more and more people dip into the funds that are meant to finance their retirement.

Alexforbes reports that 67% of members who claimed in the 2025 tax year claimed again in 2026.

And it’s not that people didn’t know better. In an Alexforbes survey of members who had withdrawn, 96% knew it would reduce their retirement savings and that they would pay tax on the amount withdrawn.

So, while they say they know it’s not a good idea they’re doing it anyway to cover today’s costs and worry about the consequences later.

The problem is that I don’t think people understand the full impact of this decision.

The long-term costs of a R20,000 withdrawal

Let’s say you’re considering dipping into your savings pool to use R20,000 to cover some unexpected costs. It seems an innocent enough amount, but not when you look at the long-term consequences.

For this exercise, let’s assume you’re 35 years old, so you have roughly 30 years for that money to grow. If it grows at 10% per year while inflation averages 4%, you’d end up with around R349 000.

That’s a tidy sum that’s the equivalent of just more than R100,000 in today’s money.

What’s important to remember is that you can generally take your savings pot as cash when you retire, with the retirement pot paying you a monthly income. Many people use this lump sum payout at this time to settle debts like a bond so that their monthly costs are lower.

In our scenario, that’s R349 000 you no longer have at retirement to lower your future cost of living.

Don’t forget about the taxman

Another reason that dipping into your savings portion isn’t a sound financial move is that you’re never going to receive the full amount you withdraw.

That’s because the withdrawal is added to your income for the year and taxed at your marginal rate, which can be as high as 45%.

In our example of drawing R20 000, if your marginal rate is 31% SARS takes about R6 200. Your fund then deducts an administration fee, which adds a few hundred rand to the equation, leaving you with roughly 67 cents in every rand withdrawn.

Oh, and if you owe SARS any outstanding tax, that’s taken first, so the payout could be even lower!

Something else to consider is that because this withdrawal counts as income, it might push you into a higher tax bracket.

Here’s a breakdown of how much of the R20,000 you’d get in your account (before fees) based on your marginal tax

If you do need it, take only what you need

Sometimes there really is no other option, and that’s what the savings pot is for. If you find yourself there, here’s something worth knowing.

You can withdraw any amount from R2 000 up to your full savings pot balance, yet Discovery found that 93% of members who withdraw take the lot. Because you only get one withdrawal a year, it can feel like a use it or lose it situation, although as I’ve shown it makes sense to take less so that the rest can continue growing.

The bottom line is that life happens and sometimes we can’t help but draw on savings when a crisis hits. That’s precisely why these changes were introduced.

Can I put the money back later?

Not directly. All new contributions, including any extra contributions you make, are split automatically: one-third into the savings pot and two-thirds into the retirement pot. That means rebuilding a R20 000 withdrawal would take R60 000 of additional contributions, and the longer you wait, the more you need to make up for lost growth.

Does this apply to my retirement annuity or preservation fund?

The two-pot system applies to most retirement funds, including retirement annuities and preservation funds, not only employer pension and provident funds. The once-per-tax-year limit applies to each fund separately, so someone with several funds could withdraw from each of them and the damage adds up quickly. Some exceptions apply: older (legacy) retirement annuity policies are excluded, and provident fund members who were 55 or older on 1 March 2021 are excluded unless they chose to opt in. Check with your adviser how your funds are affected.

What else comes off my withdrawal?

Many funds charge an administration fee on each withdrawal. Before you are paid, your fund must obtain a tax directive from SARS, and any outstanding tax debt you owe can be deducted from the payout. Once the tax directive has been issued, the withdrawal cannot be cancelled. The withdrawal also forms part of your taxable income for the year, so it can push you into a higher tax bracket, and any under-deduction of tax must be settled when SARS assesses your annual return.

What should I do instead in an emergency?

The best protection is an emergency fund of three to six months of essential expenses, kept in an accessible savings or money market account. If you are already under pressure, speak to your adviser about restructuring debt, adjusting your budget or other options before touching your retirement savings.

What happens to my savings if I resign?

If you leave an employer pension or provident fund, your retirement pot stays locked. It can only stay in the fund or be transferred to another retirement fund, such as a preservation fund or retirement annuity. You can still take your vested pot (savings built up before 1 September 2024) and your savings pot in cash, but only the first R27 500 of withdrawal benefits is tax-free over your lifetime, and every rand you take reduces the cash available when you retire. Preserving your savings is almost always the better choice.

The question is whether the sums make sense when the long-term impact can be so dramatic. Speaking to a financial advisor before making these withdrawals could help to give you some perspective and other options to consider.

* Kristin is a paraplanner to Marise Reinach CFP® and Charize Beukes CFP® at Brenthurst Wealth, Pretoria.