South Africa’s Retirement Crisis: Why Early Pension Withdrawals Could Leave Millions in Poverty

When South Africa’s new two-part retirement system launched in September last year, the goal was simple. Give people limited access to a portion of their pension before retirement, while protecting the bulk of their savings for the day they stop working. But less than a year later, Old Mutual is warning that the very system designed to preserve pensions could push millions into old-age poverty.

Billions Already Withdrawn

According to Old Mutual’s head of financial education, John Manyike, SARS data shows around R57 billion has already been withdrawn. Over four million withdrawals have been recorded, nearly half a million from people dipping in for a second time.

The majority are in the lower-income bracket, earning between R5,000 and R10,000 a month and often aged 36 to 40. Higher earners are less likely to touch their savings early, but Manyike says those who do are steadily eroding the future value of their pensions.

What This Means for Your Retirement

A retirement fund’s purpose is to replace your salary when you stop working, ideally around 70% of your final paycheque. But with the current withdrawal rates, Manyike warns some South Africans will be left with monthly payouts from their pension funds lower than the government grant. That’s especially concerning given that life expectancy in South Africa is rising, meaning your savings will need to stretch further.

For some, the damage will be made worse by carrying debt into retirement, from home loans and car financing to children’s university fees, leaving them with little to no cushion.

Why People Are Withdrawing

Old Mutual’s survey found that 45% withdrew to pay off debt, 18% for school fees, and 11% to cover their bond. Manyike questions whether this truly counts as an emergency, pointing out that while letters of demand may feel urgent, the system was never meant to be a debt-repayment tool.

Some members have been put off by tax penalties on withdrawals, but others are willing to accept the hit just to get the cash.

The Bigger Picture: Youth Unemployment and a “Time Bomb”

Manyike also highlights another risk: South Africa’s 46.1% youth unemployment rate. If young people enter the workforce late, they have less time to build retirement savings, making them more likely to depend heavily on the state. With national unemployment at 32.9%, the country’s economy is already struggling to create enough jobs.

The Call for Education

Manyike believes the solution starts with awareness. Employers, he says, should open their doors to allow retirement funds to educate members on the long-term impact of withdrawals, regardless of which fund they belong to.

He frames it as a mathematical problem: the earlier you remove money from your pension, the more you lose from compound growth over decades.

The Bottom Line

South Africa’s retirement safety net is fraying. Without a shift in behaviour, and better education about the costs of early withdrawals, the very system meant to protect pensions could leave future retirees worse off than before.

As Manyike warns, “If you don’t save enough, you’re going to downgrade your quality of life.” The choice for millions of South Africans may be between short-term relief now or dignity in their later years.

Also read: Why Joburg’s upcoming AI event could shape the future of South African business

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Source: Business Tech

Featured Image: Facebook/Old Mutual South Africa