South Africans are keeping the economy afloat by spending their pensions

South Africa’s two-pot retirement system, which came into effect on 1 September 2024, was designed to give retirement fund members some access to their savings while making sure that most of the money stays preserved for retirement. 

One-third of monthly contributions go into a savings pot, which allows for emergency withdrawals. The other two-thirds go into the retirement pot, which cannot be touched until retirement.

Over the past year, South Africans have withdrawn more than R9.5 billion from their savings pots, mainly to pay off debt or cover basic living costs.

SARS initially forecasted to collect R5 billion in extra tax from two-pot withdrawals during the 2024/25 financial year. 

However, by the end of February 2025, collections had reached R12.9 billion, more than double the estimate.

Stanlib chief economist Kevin Lings said South Africa’s fragile economic growth is being propped up these consumers dipping into their retirement savings, a trend he warned is unsustainable without a serious turnaround in investment.

“Right now, we’re really playing with small numbers, and a lot of it is because the consumer’s got this two-pot withdrawal,” Lings explained. 

“In other words, they’re taking money out of their long-term savings. We think this year they’ll take another R25 billion. They’ve already done a portion of that.”

According to Lings, the first year saw withdrawals of about R47 billion in total, and this year’s total is expected to exceed R25 billion. 

“As that money comes out of long-term savings, it is tending to go into shopping. Basically, we’re taking long-term savings and turning it into shopping,” he said.

This injection of cash has provided some relief to retailers and given the economy a short-term lift. 

Large-scale investment desperately needed in South Africa

However, Lings cautioned that it is masking deeper structural weaknesses.

“Obviously, it helps you, right, because you get some buoyancy in retail and then, if you get a cut in rates or inflation stays low, that helps you,” he explained. 

“However, we’ve got to understand where it’s coming from. It’s not driving employment growth, it’s not driving fixed investment and expansion. It’s not the best way to grow your economy.”

Growth figures underline this point. South Africa’s economy expanded by 0.8% in the second quarter, up from 0.2% in the first quarter, with retail sales providing most of the momentum. 

Year-on-year growth, however, sits at just 0.6%. “Think about it, the economy is treading water,” Lings said.

“Income per capita continues to decline, which means the purchasing power of the average South African continues to go backwards, which is terrible actually.”

Exports remain under pressure, largely due to failing infrastructure, with logistics bottlenecks and unreliable rail and port systems stifling trade. 

At the same time, South Africa remains highly import-dependent, undermining domestic industry. “This infrastructure is just not helping us,” Lings said. 

“The infrastructure to get the commodities to whichever harbour we’re using is not functioning nearly as well as you would want, and that undermines our export performance.”

He stressed that the only way to turn the economy around is through large-scale investment. 

“In order to get that better news, there’s no doubt we’re going to need more investment spending, fixed investment in infrastructure that would help enormously, some form of expansion in the private sector.” 

“If we got those numbers, then I think we’d be talking about a more buoyant economy with more durability in terms of the growth cycle.”

Until then, South Africa’s economy will keep treading water, Lings warned, and for now is being kept afloat not by productive growth, but by households cashing in their pensions.

Issued on BusinessTech by Malcolm Libera | https://businesstech.co.za/news/finance/837506/south-africans-are-keeping-the-economy-afloat-by-spending-their-pensions/