Allan Gray retirement fund warning

Allan Gray has warned South Africans not to touch the savings component of their retirement funds, as this could severely impact their financial outcomes at retirement. 

South Africa’s two-pot retirement system was introduced on 1 September 2024. It divides contributions to retirement fund members into two components: a savings component and a retirement component.

When the system was implemented in September, millions of South Africans rushed to withdraw money from their savings component.

According to Alexforbes, by the end of 2024, more than 348,000 claims had been submitted, amounting to over R6.5 billion.

Approximately 65% of these claims were submitted in September 2024. Over 97% of savings pot claims were processed by 30 November 2024, with an average processing time of eight working days.

By 30 January 2025, the number of claims had risen to more than 370,000, with a total value exceeding R7 billion.

The high volume of claims highlights members’ immediate financial needs and reinforces the importance of effective digital platforms and administrative capabilities.

Highlighting the broader picture, as of January 2025, SARS had received over 2.6 million applications for tax directives for withdrawals, approved 2.4 million, and disbursed a massive R43.42 billion.

Allan Gray’s retail legal team manager, Jaya Leibowitz, warned shortly after the new system was introduced that any withdrawal would be included in the individual’s gross income for the tax year. 

This means the amount withdrawn will be taxed at their personal income tax rate— putting the individual into a higher tax bracket. 

Risking retirement pain

Leibowitz highlighted that the tax is designed to discourage individuals from using the withdrawal benefit, especially if they have sources of income and don’t need to dip into their retirement fund savings.

“Wherever possible, retirement fund members should avoid accessing their savings withdrawal benefit,” Leibowitz said.

Using a practical example, Sanlam calculated that nearly half of the withdrawal amount could be eaten up by taxes and transaction fees. 

Sanlam explained this with an example of someone who withdraws R10,000 from their retirement fund under the new two-pot system. 

“Assuming this individual earns between R370,000 and R512,000 a year and is taxed at a marginal rate of 31%, they will lose nearly half of the withdrawal amount to tax and transaction fees. 

“This member will receive only R6,762 of the R10,000 withdrawal. R200 will go to the transaction fee, and the rest will be lost to tax,” Sanlam said.

Michelle Acton, Chief Customer Officer at Old Mutual Corporate, agreed with these concerns and told BusinessTrch that drawing funds should be the last possible resort.

“While the Two-Pot Retirement System does offer the flexibility to withdraw from your Savings Pot once per financial year, I strongly urge South Africans to think twice before accessing these funds.

“The ability to withdraw should not be seen as a quick fix for financial challenges, as it comes with long-term consequences.

“Firstly, any amount withdrawn is taxed as income, meaning you will receive less than expected.

“More importantly, withdrawing now could significantly reduce the funds available for retirement, making it harder to secure financial stability later in life,” said Acton.

Like Allan Gray experts, Acton stressed that the biggest risk of withdrawing from your Savings Pot is that it reduces the funds available for retirement.

Many people underestimate how much they will need when they stop working, and withdrawing now could create serious financial difficulties later in life.

Beyond that, Acton said there are several risks to consider:

• Lower retirement savings: Any amount withdrawn today means less money (and less investment growth) for your future. Over time, this can make a significant difference to your retirement income.

• Tax implications: Withdrawals are taxed as income, so you will receive less than the full amount withdrawn.

• Short-term relief vs. long-term financial pressure: While a withdrawal may ease immediate financial stress, it could leave you vulnerable to future financial shocks—especially when you retire and no longer have a regular income.

Alternative options

Instead of tapping into retirement savings, Acton urges South Africans to consider alternative financial strategies. Some of these alternatives include:

• Building an emergency fund to handle unexpected expenses without compromising retirement savings.

• Renegotiating debt with creditors to improve repayment terms rather than using retirement money to settle high-interest obligations.

• Cutting back on non-essential expenses to free up cash flow.

• Exploring small income opportunities, like freelancing or side gigs, to supplement earnings. Pooling resources with family or community networks to reduce financial strain.

“The key message is to use the Two-Pot flexibility wisely. If possible, leave your savings invested so they can grow over time.

“Before making any decision, I strongly recommend speaking with a financial adviser who can help you evaluate your situation and make the best long-term choice,” said Acton.