South Africa’s Two-Pot Retirement System Triggers R4.5 Billion Withdrawal Surge

Momentum, one of South Africa’s leading insurance and financial services groups, has processed over 260,000 two-pot retirement withdrawals, amounting to a staggering R4.5 billion. This unexpected surge highlights the increasing demand for early retirement fund access under the newly implemented system.

The company’s latest financial results for the six months ending December 2024 show a remarkable 55% increase in headline earnings, with total earnings per share rising to 244.3 cents. Despite strong financial performance, the rush of retirement withdrawals has placed pressure on operational processes, particularly IT infrastructure investments needed to handle the high volume of claims.

Momentum’s Financial Performance Surges Despite High Withdrawal Volume

Momentum’s interim results paint a picture of solid growth across various metrics:

• Headline earnings: Up 55% from 157.4 cents to 243.6 cents per share.
• Operating profit: Increased 33% to R2.84 billion.
• Return on equity: Improved from 17.4% to 24.6%.
• Total comprehensive income: Grew to R3.47 billion.
• Investment return: More than doubled to R595 million.

These gains were fueled by internal operational improvements, strategic business expansion, and a favorable market environment. However, the two-pot withdrawals have created challenges, particularly in retirement fund processing and annuity sales.

Two-Pot Withdrawals: A Growing Trend

Momentum’s experience aligns with trends across the financial sector, where early withdrawals under the two-pot system have exceeded expectations. Other major insurers, including Alexforbes, have reported similar spikes.

In March 2025, Alexforbes revealed it had received over 68,000 withdrawal claims within just 14 days of the new tax year. According to the company’s research, many individuals who withdrew funds in the previous tax year are likely to do so again.

This pattern suggests that South Africans are increasingly opting to access their retirement savings early, often due to financial hardship or short-term needs.

Impact on SARS and South Africa’s Economy

The surge in two-pot withdrawals has significantly boosted revenue for the South African Revenue Service (SARS). Initially, SARS expected to collect R5 billion from the system but has already received R11.6 billion—more than double the forecasted amount.

While this is a short-term revenue win for the government, financial advisors warn that excessive withdrawals could undermine long-term retirement savings, potentially increasing reliance on state support in the future.

Challenges and Future Outlook

Momentum has acknowledged that processing the sheer volume of withdrawal claims has impacted sales in other segments, particularly life annuities. Additionally, higher operating costs—especially in IT infrastructure—were necessary to accommodate the increased demand for withdrawals.

Looking ahead, the financial sector anticipates continued high withdrawal rates throughout 2025. As financial advisors caution against unnecessary withdrawals due to tax implications and reduced retirement savings, the industry is closely watching how this trend will shape South Africa’s long-term financial landscape.

{Source BusinessTech}

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