How the two-pot system can reshape wellbeing in the workplace

A year on, the two-pot retirement system is positively shifting South Africans' mindset around long-term savings

A positive consequence of the two-pot retirement system, introduced by the government a year ago to compel South Africans to preserve most of their savings for retirement, is that it provides employers with a means of intervention to improve employee wellbeing and boost workplace productivity.

Under the new system, retirement contributions are channelled into two pots - one third into a savings pot, which retirement members can access once a year, and two thirds into a retirement pot, which is not accessible until retirement age. A third vested pot contains accumulated savings until 31 August 2024 and is not subject to the new rules.

Guy Chennells, Chief Commercial Officer, Discovery Corporate and Employee Benefits (CEB), says that data on people who withdrew money from their savings pot - which also contained a seed amount of up to R30 000 from their vested pot - show just how financially stretched South African employees are. "Most withdrawals are not being used for luxuries, but for basic needs and education. This tells a clear story: employees are under immense financial pressure, and this stress inevitably spills into the workplace," he says. "By recognising these realities, employers can play an important role in helping their workers manage money better, reducing stress and unlocking higher engagement and productivity."

Key two-pot data

Data gathered by Discovery CEB between September 2024, when the system came into operation, and June this year, produced some surprising statistics.

• Withdrawals from the savings pot were highest immediately after implementation, and there was another, lower, peak in March at the beginning of the new tax year, driven mainly by repeat claimants. The average withdrawal to the end of February was about R13 000, and it has reduced by 60%, or R4 600, since then.
• Of the 89% of retirement members who were eligible to claim, 39% did so while the remaining 61% did not, choosing to preserve the amount in their savings pot.
• The overwhelming majority (93%) of claims before March and repeat claims since then, were for a full withdrawal.
• The highest number of withdrawals were from the Millennial age group (aged 29 to 44 years) followed by the Gen Z group (aged below 29 years). "The Millennial cohort, which also had the highest repeat withdrawals, are in the toughest phase of life in supporting their families and have presumably been hit the hardest economically," Chennells says.
• For similar reasons, more low-income employees than higher earners claimed from their savings pots - about 43% of people earning less than R125 000 per year against only 7% of people earning over R1 million per year. "However, repeat withdrawals were highest in the middle-income bracket (R250 000 to R500 000 per year), indicating that lower earners had not yet accumulated enough new savings by March to make the minimum withdrawal of R2 000," Chennells says.

More surprises came from data on the reasons people gave for claiming:

• Only 2% of claimants said they would use the money to cover an emergency. "This is ironic, given that accessibility to a portion of savings for emergencies was a motivating factor behind the implementation of the new system," Chennells says.
• Education topped the list: 25% of claimants gave education expenses as the reason for making the withdrawal. These claims peaked between December and February, the time school fees were due, and the rate was higher among low- and middle-income groups. Women were 1.8 times more likely than men to use withdrawals for school fees.
• Other indicators that withdrawals were largely used for necessities over luxuries were that car and home expenses accounted for 19% of claims, clearance or reduction of short-term debt 18% of claims, and day-to-day expenses 12% of claims.

Key insights for employers

The insights that the withdrawal data is revealing on employees' financial health and the heightened interest in employee benefits generally present an opportunity for employers to step in with meaningful employee assistance programmes, from financial education to access to financial management tools and expertise.

Financial stress is one of the biggest drains on productivity. Several studies* in South Africa and overseas have shown a strong link between employees' financial wellbeing and productivity in the workplace. Unmanageable debt, for example, is a major cause of stress, which can result in a lack of concentration and tiredness (typically through interrupted sleep), absenteeism, decreased morale, and mental health issues such as depression. Productivity studies have also shown that, by helping employees manage stress better, businesses benefit through improved focus, morale, and long-term loyalty.

Chennells says Discovery's Vitality Money programme is an excellent example of how this can work. "Vitality Money tracks members' financial planning, debt management, investment and insurance behaviours. Looking at their status as a proxy for how well members manage their money, we found that high earners (those earning more than R1m per year) on the entry-level Blue status had a three-and-a-half times higher withdrawal rate than low earners (those earning under R125k per year) on the top tier Diamond status. This is phenomenal, because it is the reverse of the strong low-income/high-withdrawal-rate correlation that we see generally, highlighting the power of financial education and engagement," he says.

"The two-pot data shows that many employees are experiencing financial stress but that those with better financial management skills, even among lower earners, are avoiding touching their savings pots. Employers take note: empower your workforce with the tools to make better financial decisions, and you will unlock higher engagement and productivity," Chennells concludes.

^{*Financial stress/productivity studies
https://www.bbrief.co.za/content/uploads/2022/05/Floatpays-The-State-of-Employee-Wellbeing-Barometer-.pdf
https://cebr.com/wp-content/uploads/2022/03/Financial-Wellbeing-report-v1.2-1.pdf
https://www.pwc.com/us/en/services/consulting/business-transformation/library/employee-financial-wellness-survey.html}