Discovery: Poor Mental Health Drives South Africa Two-Pot Withdrawals

• Individuals with poor mental health are more likely to access their retirement savings through South Africa's two-pot system.
• Discovery data indicates a vicious cycle where financial pressure impacts mental health, which in turn affects spending habits.
• Since its September 2024 launch, the two-pot system has seen a small percentage of frequent withdrawers, though 54% of Discovery members have not touched their savings.
• Rising gambling activity, up 226% since 2019, and other structural factors like debt and cost of living, exacerbate the need for early withdrawals.
• The two-pot system is credited with preserving more retirement capital and improving communication between funds and members, helping to address unclaimed benefits.

The analysis underscores a critical link: while significant financial pressure can precipitate mental health challenges, poor mental well-being, conversely, influences spending habits, creating a detrimental feedback loop where mental health directly impacts financial stability.

Individuals grappling with poor mental health, including issues like anxiety, depression, and sleep disturbances, are demonstrably more prone to accessing their retirement savings. This critical insight was shared by Guy Chennells, Chief Commercial Officer for Corporate & Employee Benefits at Discovery, during his address at the Institute of Retirement Funds Africa (Irfa) annual conference. The conference focused on understanding the dynamics of who, how, and why people utilize South Africa two-pot mental health withdrawals.

Chennells highlighted a concerning feedback loop: while intense financial pressure can often precipitate mental health challenges, poor mental well-being, in turn, significantly influences spending patterns. This creates a detrimental cycle where mental health directly impacts financial stability. Discovery's analysis, drawing on data from its Vitality rewards programme, employee benefits, health administration, banking services, and retirement funds, aims to unravel the complex motivations behind individuals' financial decisions.

South Africa's two-pot retirement system, which became effective on September 1, 2024, was designed to offer fund members the flexibility to access one-third of their contributions annually. This reform sought to alleviate immediate financial pressures, a common reason why individuals previously resigned prematurely to access their full pension savings, while still promoting long-term retirement security.

Analysis of Discovery two-pot withdrawal data reveals distinct patterns. Since the system's inception, there have been three opportunities for withdrawals, which are taxed at the individual's marginal rate. A small but consistent segment of members are frequent withdrawers, having utilized all three available chances. In 2025, 43% of eligible Discovery fund members made a withdrawal, a figure that climbed to 46% in 2026. However, the average amount available for withdrawal decreased from 36% to 27% in 2026. Chennells observed that these consistent withdrawals prevent significant savings accumulation for frequent users, contrasting sharply with the 54% of Discovery retirement fund members who have not touched their two-pot savings, thereby building substantial balances for genuine emergencies or their eventual retirement.

Beyond individual mental health, broader societal and economic factors contribute to the necessity for early retirement fund access. Chennells pointed to pervasive structural issues in South Africa, including the escalating cost of living, mounting debt, and a dramatic surge in gambling activity. Gambling has increased by 226% since 2019, with online spending in South Africa now comparable to that of much wealthier nations like Norway, placing it among the highest globally. This trend severely erodes individuals' capacity for long-term saving, impacting ZA retirement fund mental health and financial resilience.

Despite these challenges, the two-pot system has garnered significant praise. Irfa chair Nancy Andrews lauded the legislation, asserting that it has preserved substantially more retirement capital than would have been possible under previous regulations, calling the balance between early access and long-term preservation a highly effective strategy. Furthermore, Raazia Khan, head of benefits at NMG, highlighted a crucial ancillary benefit: the system has spurred improved communication between retirement funds and their members. This has compelled funds to update member contact details, a development that directly addresses the historical challenge of billions in two-pot system unclaimed benefits, a problem that the new system is helping to mitigate.

Retirement fund administrators and employers in South Africa should note the identified link between poor mental health, financial pressure, and frequent two-pot withdrawals. This insight is crucial for developing targeted member support programs, refining communication strategies, and mitigating risks associated with high withdrawal rates and unclaimed benefits.

Source: Original reporting via Moneyweb