When a mid-town Johannesburg couple opened their latest retirement statement, the surprise was not the balance but the line-item labelled “withdrawal”. The money they had earmarked for a future pension was now being used to pay the electricity bill and a school fee. That scene is becoming common across South Africa’s middle-income suburbs, according to Momentum Corporate.
Momentum’s Nashalin Portrag told BusinessTech that middle-class households are the biggest users of the two-pot retirement system’s savings component. The two-pot system, introduced two years ago, splits each employee’s contribution into a pension component (which stays locked until retirement) and a savings component that can be accessed once a minimum of R2,000 is accumulated. The rule was meant to give people a safety net, but the data show it is now being used as a last-resort cash source.
Who is pulling the money out and why?
Portrag said the survey carried out by Momentum found that 44% of withdrawals go toward paying off debt, 23% cover everyday living expenses and 20% fund education costs. The remaining withdrawals are spread across other essential needs. “People aren’t withdrawing to pay for holidays or investments but to survive,” he said.
The same survey revealed a stark gap between intention and action. In 2025, 74% of members said they would only touch the savings component in a genuine emergency. By 2026, only 48% of eligible members had not made a withdrawal, a 26% shortfall that Portrag attributes to rising interest rates, persistent inflation and stagnant wage growth.
Age and life stage also shape the pattern. Mid-career millennials are the most likely to make repeat withdrawals as they juggle home loans, credit-card debt and child-rearing costs. Gen X members tend to withdraw once and stop, while Baby Boomers are the least likely to dip into their pots, thanks to higher financial stability and proximity to retirement.
Thys van Zyl, chief executive of Everest Advisory Services, warned that each withdrawal erodes the power of compound growth, the interest earned on interest over many years. “The greatest risk is not a single large withdrawal but a series of smaller withdrawals over time,” he said. If the trend continues, the state may face a larger burden supporting retirees whose pots have been depleted.
There is a silver lining, however. Momentum reported that 45% of those who have withdrawn did so only once, and 10% say they will not withdraw again. “Many members have learned, after seeing tax deducted and their long-term growth shrink, that repeat withdrawals come at a real cost,” the company noted.
For small-business owners and retailers, the shift has immediate implications. When households divert retirement savings to cover basic costs, disposable income for non-essential purchases shrinks. That can translate into lower foot traffic for boutique stores, reduced online sales of discretionary goods, and tighter credit conditions as lenders see more borrowers relying on retirement funds rather than traditional loans.
At the same time, the pattern signals a broader macro-economic pressure. South Africa’s cost-of-living crisis, driven by high inflation and a weak rand, is forcing a larger share of the population to treat long-term savings as a short-term buffer. Policymakers may need to reconsider the minimum-balance rule or introduce alternative safety-net products that do not compromise retirement security.
In the short term, the reality is that many middle-class families view their two-pot savings as a de-facto emergency fund. The long-term challenge will be to balance that immediate relief with the need to preserve enough capital for a dignified retirement.
Why an early withdrawal costs more than it removes
The damage from taking money out of a retirement fund early is not the amount withdrawn. It is the amount withdrawn plus everything it would have earned over the years remaining until retirement, and because that growth compounds, the loss grows with the time left rather than with the size of the withdrawal. The same amount taken out twenty five years from retirement costs several times what it costs five years out. This is the least intuitive part of the arithmetic, and it is why financial advisers treat early access by younger members as the more serious problem even though older members typically withdraw larger sums.
Tax makes the gap wider. Money taken from the savings component before retirement is taxed as ordinary income at the member’s marginal rate, rather than under the more favourable treatment applied to retirement lump sums. A withdrawal can also push taxable income into a higher bracket for that year, so the amount that reaches a bank account is frequently well below what a member expected when they applied. Withdrawing to settle a debt is therefore rarely a like for like swap, and whether it makes sense depends on the interest rate being escaped compared with the tax paid and the growth given up.
What an employer can reasonably do
Repeated early withdrawals are a symptom of a household having no accessible savings anywhere else, so a retirement fund becomes the emergency fund by default. That is a cash flow problem rather than a retirement one, and the interventions that help sit outside the fund.
Payroll deducted savings into an accessible account are the most direct: the balance builds where it can be reached without touching a retirement product, and money that never lands in a current account is measurably easier to save. Employers who offer short term advances or salary linked emergency loans on reasonable terms address the same need at lower cost to the employee than either a withdrawal or unsecured credit.
Information also does more than it is usually credited with, provided it is specific. A member deciding whether to withdraw generally knows the balance and almost never knows what the withdrawal will cost after tax, or what it will be worth at retirement if left alone. Making both figures visible at the moment of the decision, rather than in a booklet, is a low cost intervention that fund administrators are well placed to provide.
For a business, the wider point in this data is that a workforce drawing on retirement savings to cover living costs is a workforce under financial pressure, and financial pressure shows up at work as absenteeism, distraction and a greater willingness to move for a modest increase.
