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Allan Gray Warns South Africans: Think Twice Before Withdrawing from Retirement Funds
South Africans have been quick to access their retirement savings since the implementation of the Two-Pot Retirement System on 1 September 2024. However, Allan Gray and other financial experts are urging caution, warning that early withdrawals could have long-term financial consequences.
Understanding the Two-Pot Retirement System
The new system splits retirement fund contributions into two components:
- Savings Component – allows limited withdrawals before retirement.
- Retirement Component – remains preserved until retirement age.
Following its introduction, millions of South Africans withdrew funds, highlighting urgent financial needs. According to Alexforbes:
- By end-2024, over 348,000 claims were submitted, totaling more than R6.5 billion.
- By 30 January 2025, claims had exceeded 370,000, with withdrawals surpassing R7 billion.
- The South African Revenue Service (SARS) received 2.6 million applications for tax directives, approving 2.4 million, resulting in over R43.42 billion in disbursements.
The Financial Risks of Early Withdrawals
While the new system provides flexibility, Allan Gray’s retail legal team manager, Jaya Leibowitz, warns that any amount withdrawn is included in gross income for the tax year. This could push individuals into a higher tax bracket, significantly reducing the amount received.
Example: How Tax and Fees Reduce Withdrawals
Sanlam provides a breakdown of how taxes impact withdrawals:
- If a member earning R370,000 to R512,000 per year withdraws R10,000, they would be taxed at a marginal rate of 31%.
- They would only receive R6,762, after deductions for tax and transaction fees.
Experts Advise Against Withdrawals
Michelle Acton, Chief Customer Officer at Old Mutual Corporate, supports this warning:
“The ability to withdraw should not be seen as a quick fix. It comes with long-term consequences.”
She emphasizes three major risks:
- Lower retirement savings – Less investment growth over time means lower income at retirement.
- Tax implications – Withdrawals are taxed as income, reducing the amount received.
- Short-term relief vs. long-term impact – While it may ease current financial stress, it could leave individuals vulnerable later in life.
Alternative Financial Strategies
Instead of tapping into retirement funds, experts suggest:
- Building an emergency fund for unexpected expenses.
- Renegotiating debt to improve repayment terms.
- Cutting back on non-essential spending.
- Exploring extra income sources, such as freelancing or side gigs.
- Pooling resources with family or community to reduce financial strain.
The Two-Pot Retirement System offers flexibility, but financial experts strongly advise against unnecessary withdrawals. Before making a decision, consider consulting a financial adviser to evaluate your long-term financial health.
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