Annual two-pot withdrawals could cost an employee R1 million at retirement

8 September 2026: R399 600 now, or R1.01 million more later. That’s the choice facing employees under South Africa’s two-pot retirement system, according to a new analysis by René Richter, Reward and Benefits Lead Advisor at earned wage access and HR solutions platform Paymenow, written for the Total Reward Knowledge Hub.

Richter modelled the impact for an employee earning R30 000 a month who withdraws the full savings-component allocation every year for 30 years. They would pocket R399 600 in after-tax withdrawals over that period, but retire with about R1.01 million less than if they had left their retirement savings alone.

The gap exists because of how the system is structured. Since 1 September 2024, one-third of new retirement fund contributions goes into a savings component and two-thirds into a retirement component. Members may make one savings withdrawal per tax year, subject to a R2 000 minimum and available funds.

Each withdrawal carries multiple costs. It removes capital that would otherwise compound. The amount is then added to taxable income and taxed at the member’s marginal rate, and the fund may deduct an administration fee on top of that. The cash an employee receives can be well below the amount taken out of their retirement savings.

Take an employee earning R30 000 a month who contributes 15% of salary to a retirement fund, or R4 500 a month. R18 000 a year goes to the savings component, and R36 000 a year goes to the retirement component.

With no withdrawals, the annual R54 000 contribution could grow to about R3.03 million in today’s money (which excludes the effect of inflation). Withdraw the full R18 000 savings allocation at the end of every year and only the protected R36 000 stays invested, reaching about R2.02 million at retirement.

“The two-pot system does what it was designed to do,” says Richter. “It helps stop employees resigning to reach their retirement savings, and it keeps them out of expensive credit in a genuine emergency. The risk is that the withdrawal becomes an expectation in the annual household budget, and that the compounding effects of interest aren’t taken into account. Financial education needs to move past explaining how to withdraw and start showing employees what they are giving up.”

Employees typically reach for retirement savings when they’re under immediate pressure. Transport costs, a medical bill, a school payment or a household repair can open a cash-flow gap before payday. Without an alternative, the choice narrows to short-term credit or a withdrawal.

Paymenow addresses the timing of that gap by giving employees access to a rule driven portion of wages they have already earned. It is a payroll facility rather than a loan, and carries no interest, initiation fee or subscription fee. Employees pay a small service and transaction fee when they draw on earned wages.

The difference is measurable. Consider an employee who is R2 000 short before payday each month. Under the maximum charges prescribed for short-term credit agreements, that employee could pay an initiation fee of R265 per loan, interest of 5% on the first loan in a calendar year and up to 3% on each loan after it, before service fees and VAT or credit insurance. Twelve loans over a year would cost roughly R3 940 in interest and initiation fees. At an illustrative average Paymenow fee of R50 a transaction, the same twelve transactions cost R600, leaving the employee R3 340 better off.

Redirected into an emergency savings account earning 7.25% a year, the rate currently available to Paymenow users through Allan Gray Money Market, R3 340 a year could grow to about R19 300 over five years. That covers a R18 000 annual retirement savings-component contribution the employee would otherwise have been tempted to withdraw.

“Paymenow’s value lies in the borrowing costs that an employee is able to avoid,” says Richter. “Those costs become disposable income, and disposable income can be redirected into savings. For cash-strapped employees under pressure to make two-pot withdrawals, that turns earned wage access from a payroll convenience into a retirement-preservation measure.”