South Africans are under serious financial pressure. Electricity costs are up 85% in just five years, and the price of a basic food basket has climbed by more than 60% since 2019.
Budgets are stretched thin, and many people are looking for ways to access emergency cash. Two common ways to do this are withdrawing from your two-pot retirement savings or taking out a personal loan. How do you know which option is best for you?
“The most suitable option ultimately depends on your unique financial circumstances,” notes Brandon-Lee Stevens, a financial adviser at Liberty. “Key considerations include income stability, debt position, emergency needs, proximity to retirement, and ability to absorb repayments.”
A two-pot withdrawal may deliver less cash than you expect
Many South Africans consider two-pot withdrawals to pay off debts or fund unexpected expenses, says Sylvia Walker, registered financial adviser and author of Smartwoman: How to Gain Financial Independence and Create Wealth.
Unfortunately, the amount of money you receive is often much lower than expected. This is because tax is deducted from the amount you withdraw – you are taxed at your marginal income tax rate – and you also pay admin fees.
Stevens warns that what looks like R30,000 in your savings pot could leave you with as little as R18,000 to R22,000 after deductions and fees.
The impact of fees is even more pronounced on smaller amounts. “Withdrawing R2,000 and losing R300 in fees plus tax can make the effective cost surprisingly high,” he notes.
Impact on small withdrawals
Withdrawal | Fee | Fee % of withdrawal |
R2,000 | R300 | 15% |
R5,000 | R300 | 6% |
R15,000 | R300 | 2% |
R30,000 | R300 | 1% |
This table shows what you can expect to receive after tax and admin fees are deducted. The fee of R300 is an estimate – fees can range from R250 to R600.
Estimated net payouts for two-pot withdrawals
Annual income | Marginal tax rate | Gross withdrawal | Estimated tax | Estimated admin fee | Approximate net payout |
R120,000 | 18% | R5,000 | R900 | R300 | R3,800 |
|
| R15,000 | R2,700 | R300 | R12,000 |
|
| R30,000 | R5,400 | R300 | R24,300 |
R250,000 | 26% | R5,000 | R1,300 | R300 | R3,400 |
|
| R15,000 | R3,900 | R300 | R10,800 |
|
| R30,000 | R7,800 | R300 | R21,900 |
R400,000 | 31% | R5,000 | R1,550 | R300 | R3,150 |
|
| R15,000 | R4,650 | R300 | R10,050 |
|
| R30,000 | R9,300 | R300 | R20,400 |
R600,000 | 36% | R5,000 | R1,800 | R300 | R2,900 |
|
| R15,000 | R5,400 | R300 | R9,300 |
|
| R30,000 | R10,800 | R300 | R18,900 |
Assumptions used in the above example:
A salaried employee younger than 65
No extra income or tax deductions
Tax calculated using an estimated marginal tax rate
An estimated fund administration fee of R300 deducted
Figures rounded for simplicity and ease of comparison
Additional considerations
Stevens recommends that you check your SARS compliance before applying for a two-pot withdrawal. Make sure:
Your tax returns are up to date and submitted
You have no outstanding tax debt with SARS; or,
Any tax debt has been settled, or a repayment arrangement is in place
If you owe SARS money, some or all of your two-pot withdrawal may be used to settle the debt before the balance is paid to you. This often comes as a surprise to members expecting to receive the full withdrawal amount.
Also consider that funds withdrawn can no longer contribute to your retirement income. Younger people have the most to lose as they sacrifice compound growth, says Stevens. A single pension fund withdrawal erodes future value, and the member makes no additional contributions to the withdrawn amount.
R15,000 withdrawn today
Years to retirement | Future value lost* |
5 years | R24,000 |
10 years | R39,000 |
25 years | R163,000 |
R30,000 withdrawn today
Years to retirement | Future value lost* |
5 years | R48,000 |
10 years | R78,000 |
25 years | R325,000 |
* Assumes a 10% nominal annual return.
These are significant losses over time, which is why it is essential to weigh up your options.
Could a personal loan be right for you? Explore your options by registering with JustMoney.
Think beyond the immediate cash
A two-pot withdrawal may solve an immediate problem, but it can create risks later on.
You can only make one withdrawal per tax year, so if an emergency arises before the next tax year begins, you may be forced to rely on credit cards, overdrafts, or personal loans.
Timing matters, too. Because a two-pot withdrawal is added to your taxable income, withdrawing money in a month when you receive a bonus or commission could result in a bigger tax deduction.
“Although making a two-pot withdrawal is better than cashing in your entire pension fund, it’s damaging to long-term retirement savings,” says Walker. She recommends withdrawing only as a last resort, and not for non-essential expenses such as home renovations or a matric dance.
A personal loan preserves your retirement savings
Unlike a two-pot withdrawal, a personal loan leaves your retirement savings invested. “You won’t be taxed on the loan amount, but interest and fees will increase the total cost,” says Walker.
A loan offers certainty because you know from the start what your monthly repayments will be. However, you must be able to afford them, and lenders will check this before approving your application.
Also look beyond the interest rate when comparing loans. The total cost can include initiation fees, monthly service fees, credit life insurance, and interest charges.
To help you compare loan costs, here are approximate monthly repayments for different loan amounts and interest rates, excluding optional insurance:
R5,000 loan
| Loan period | ||
Interest | 12 months | 24 months | 36 months |
16% | R455 | R245 | R177 |
22% | R475 | R265 | R198 |
28% | R495 | R286 | R220 |
R15,000 loan
| Loan period | ||
Interest | 12 months | 24 months | 36 months |
16% | R1,365 | R735 | R530 |
22% | R1,425 | R795 | R595 |
28% | R1,485 | R858 | R660 |
R30,000 loan
| Loan period | ||
Interest | 12 months | 24 months | 36 months |
16% | R2,730 | R1,470 | R1,060 |
22% | R2,850 | R1,590 | R1,190 |
28% | R2,970 | R1,716 | R1,320 |
Using these figures as a guide, compare the total repayment amount over the full loan period with what a two-pot withdrawal could cost in tax, fees, and lost investment growth.
For higher earners, borrowing may be cheaper than a two-pot withdrawal once tax is taken into account. Lower-income earners may find it harder to qualify for affordable credit.
Typical loan pricing by credit profile
Good credit profile: Typically 12%–20% interest, with better approval prospects.
Average credit profile: Typically 22%–34.85% interest (the National Credit Act cap), with stricter affordability checks.
Knowing what a good credit profile looks like – and understanding your credit score – will improve your borrowing chances.
Pension withdrawal vs personal loan: Which is better for you?
Let’s compare which option may be better for you.
Income-based comparison
Option | Earnings under R10,000 | Earnings of ± R20,000 | Earnings of R25,000+ |
Personal loans
| Often difficult to qualify for. High costs can add pressure. | Can work if repayments are affordable. If the emergency is temporary and repayments are manageable, a loan may preserve your savings. | Higher earners can afford and absorb repayments more easily, access lower-cost credit, and preserve retirement capital. |
Two-pot withdrawals | Realistic when loan approval is out of reach.
| First weigh up the urgency, what you can afford, and whether there are other ways to access cash. | Preserve retirement savings if possible.
|
Key considerations | Credit score, affordability, urgency. | Current debt levels, job security, urgency, how close you are to retirement. | Job security, ability to afford repayments, how close you are to retirement. |
In the example below, a two-pot withdrawal gives you a once-off payout, but tax and admin fees reduce the amount you receive. A personal loan gives you the full loan amount upfront, but you must repay it monthly, with interest (in this example, over 24 months).
Monthly income | Two-pot withdrawal/loan amount | ||
R10,000 | R20,000 | R50,000 | |
R15,000 (R180,000 annually) | Payout after deductions: R7,900 Loan repayment: R509-R549 | Payout after deductions: R16,100 Loan repayment: R1,018-R1,098 | Payout after deductions: R40,700 Loan repayment: R2,545-R2,744 |
R25,000 (R300,000 annually) | Payout after deductions: R7,100 Loan repayment: R490-R529 | Payout after deductions: R14,500 Loan repayment: R979-R1,057 | Payout after deductions: R36,700 Loan repayment: R2,448-R2,644 |
R40,000 (R480,000 annually) | Payout after deductions: R6,600 Loan repayment: R471-R509 | Payout after deductions: R13,500 Loan repayment: R941-R1,018 | Payout after deductions: R34,200 Loan repayment: R2,354-R2,545 |
Figures are illustrative only. Two-pot withdrawal amounts show the estimated payout after income tax and a R300 admin fee. Actual tax will depend on the individual’s taxable income and other circumstances.
Loan repayments are estimated monthly repayments over 24 months, based on assumed personal loan interest rates linked to gross income bands. Actual loan rates will depend on the lender’s affordability assessment, credit profile, repayment history and existing debt.
Before making a final decision, use the SARS Two-Pot Retirement System Calculator to estimate what you would actually receive after tax and compare that with the full cost of borrowing. It’s also a good idea to speak to a financial planner.
Could a personal loan be right for you? Explore your options by registering with JustMoney.