Battling ‘sandwich generation’ members make the most two-pot savings withdrawals

The greatest number of two-pot savings withdrawals were made by those aged between 35 and 45, according to Discovery Corporate and Employee Benefits. Sanlam Umbrella Solutions’ data mirrored this, with members earning between R15,000 and R40,000 monthly being the most frequent withdrawers.

“This figure emphasises the pressures facing South Africa’s ‘sandwich generation’, who are battling to support young children while potentially being responsible for their older parents too,” said Guy Chennells, the chief commercial officer at Discovery Corporate and Employee Benefit.

“This is worsened by the recent high-inflation cycle, increased debt and electricity costs and other cost-of-living pressures which have devastated household finances, especially for families.”

Anna Siwiak, the head of product development at Sanlam Umbrella Solutions, said there were notable trends among middle-aged, middle-income individuals opting to withdraw funds.

“This group often balances the dual pressures of immediate financial responsibilities and future planning and seems to be leveraging the two-pot system for short-term relief. It’s crucial, however, to understand the long-term implications of their choices, as tapping into these savings now can impact their retirement outcomes.”

“We know that South Africans are struggling financially, given the current economic climate. The 2024 Sanlam Benchmark report shows that the proportion of members withdrawing all or part of their savings on resignation increased from 53% in 2022 to 72% in 2024, with 54% of these members using the funds to cover living expenses and reduce or settle debt,” she said.

Short-term financial relief 

Both fund administrators said the greatest motivation for two-pot pension fund withdrawals was short-term financial relief.

Discovery Corporate and Employee Benefits’ data collated via its WhatsApp channel showed that 24% of claimants planned to resolve car or home expenses, followed by 21% who wanted to pay off short-term debt.

“We found it surprising that a big group of claimants (20%) was using the extra money for education, presumably in the majority of cases for children’s school fees, as well as for day-to-day expenses (11%). Sadly, these are all indications of the cost-of-living crisis faced by so many,” said Chennells.

The two-pot retirement system, which is intended to promote compulsory retirement savings while also allowing limited access to a savings pot, kicked in on 1 September.

Read more: Two-pot retirement reform in a nutshell



Source: Discovery Corporate and Employee Benefits (16-27 Sept 2024)

Chennells said most of the claimants who chose “other” as their reason for withdrawal planned to use the money for home improvements and renovations, adding that this was not a good idea.

Travel was selected as a reason for withdrawal by only 1% of claimants.

Income groups

“Building an automated payment process that doesn’t require any manual intervention has been a key focus of ours, to ensure members can access these funds when they need to, in a convenient and seamless way,” noted Chennells.

The Discovery team processed 180 times the usual daily claims volume via its WhatsApp channel — with 29% paid within three days of claim submission, 84% within four days, and 99% within five days.

On average, Sanlam Corporate processes 7,000 to 8,000 retirement, withdrawal or retrenchment claims a month. However, by 20 September, it had received more than 66,000 claims totalling over R1.3-billion.

“We found that approximately 75% of people chose the web or app route for submitting their withdrawal requests,” said Chennells. Although this channel usage crossed all age categories, 40% of the low-income group preferred to use WhatsApp compared to just 8% of those in the very high-income category.

Of the 22% of total withdrawals recorded during September, Discovery’s Corporate and Employee Benefits found that more than 40% were made by middle-aged people with a low to medium income, while less than 1% of those making withdrawals were over 55 with a very high income. Discovery classifies low income as R125,000 and less per year, medium income as R125,000 to R500,000 per year and very high income as more than R1-million a year.

Chennells said income was a much stronger driver of withdrawal rates, with low-income claimants at 38%, middle-income claimants at 29%, high-income claimants at 12% and very high-income claimants at just 4%.

“There might be another spike in withdrawals in November during Black Friday, possibly another at Christmas and a third early next year, as the new school year starts. However, the relatively low percentage of overall withdrawals shows that most people understand they must only draw on their savings pots in genuine financial emergencies,” said Chennells. DM