The two-pot retirement system has made it easier for consumers to access a portion of their retirement savings, but it has also created new challenges for advisors. This article looks at the advice, disclosure and compliance considerations financial services providers (FSPs) should keep in mind when clients want to make a withdrawal.
When South Africa’s two-pot retirement system came into effect on 1 September 2024, much of the focus was on understanding how the new framework would operate and what its impact would be on retirement fund members. Nearly two years later, the industry is now navigating the practical realities and behavioural consequences of the reform.
A key feature of the system is the introduction of the savings component, which allows members to access a portion of their retirement savings before retirement. The demand for access has been significant. By mid-2025, retirement fund members had made nearly four million withdrawals from their savings component, amounting to almost R57 billion.
While this flexibility has provided much-needed financial relief for many consumers, it has also introduced new advice, disclosure and conduct challenges for FSPs. Advisors are increasingly being asked to help clients assess whether accessing retirement savings is appropriate and to explain the long-term consequences of doing so.
Against this backdrop, the reform has reinforced the importance of suitable advice, robust recordkeeping and clear client communication to ensure that consumers fully understand the implications of their decisions.
New challenges for advisors
While the savings component has provided relief for consumers facing financial pressure, it has also highlighted the risk that retirement savings may be viewed as a readily available source of cash rather than as a vehicle for long-term financial security.
Many clients continue to underestimate the consequences of accessing their retirement savings. Common misconceptions include the belief that withdrawals have little impact on future retirement benefits, that the savings component can replace an emergency fund or that funds can be accessed without significant cost. In reality, withdrawals reduce the capital available for future growth, may have tax implications and can materially affect retirement outcomes over time.
These realities have increased the need for ongoing client education and behavioural coaching. Retirement projections or scenario modelling can be useful tools to help clients understand the long-term impact of repeated withdrawals on their retirement outcomes.
Advice obligations in practice
Withdrawal requests may be new, but the principles of good advice remain unchanged. When discussing a withdrawal, advisors remain subject to the same FAIS requirements that apply to any other financial product recommendation or financial decision. They should continue to act with due skill, care and diligence, provide appropriate and suitable advice and ensure that clients receive sufficient information to make informed decisions.
Importantly, FSPs should avoid treating withdrawal requests as purely administrative exercises. Where advice is provided, the normal advice process should be followed, including assessing the client’s circumstances, considering alternatives and documenting the rationale for any recommendation.
The importance of needs analysis and suitability assessments
The two-pot system has increased the importance of conducting thorough needs analyses and suitability assessments.
Before supporting or recommending a withdrawal, advisors should understand why the client wishes to access their retirement savings and whether alternative solutions may be more appropriate.
The purpose of the suitability assessment is not to prevent clients from accessing their savings component, but to ensure that any recommendation takes account of the client’s financial circumstances, objectives and long-term retirement goals. This is particularly important where clients are nearing retirement, making repeated withdrawals or where retirement savings levels are already low.
Disclosure is critical
Clear and effective disclosure remains one of the most important compliance requirements when advising clients on two-pot withdrawals.
Before a client makes a decision, they should understand the potential consequences, including:
- The tax implications of the withdrawal
- The impact on future retirement benefits
- The loss of future compound growth
- Any applicable fees, charges or processing timelines
- The rules and limitations that apply to withdrawals
Disclosure should not be treated as a compliance exercise aimed at obtaining a signature. Advisors should take reasonable steps to ensure that clients genuinely understand the information being provided and the effect their decision may have on their long-term financial wellbeing.
This aligns with the principles of Treating Customers Fairly (TCF), which require customers to receive clear information and be placed in a position to make informed decisions.
Documentation and recordkeeping
Where advice relating to a withdrawal is provided, FSPs should ensure that a detailed Record of Advice (ROA) is maintained. The ROA should document the client’s request, the analysis performed, the risks discussed, the recommendation made and the client’s final decision.
Supporting documentation may include:
- Retirement projections or scenario modelling records
- Needs analyses
- Suitability assessments
- Disclosure records
- Signed client instructions or acknowledgements
- Relevant correspondence and communication records
These records provide evidence that the advice process was properly followed and may be important if the quality of the advice is later questioned by a client, the Ombud or a regulator.
Managing conduct risk
The two-pot system also creates potential conduct risks that FSPs should actively manage.
Examples include inadequate disclosure, poor-quality advice, insufficient documentation or situations where commercial considerations influence recommendations.
FSPs should ensure that advisors receive appropriate training on two-pot withdrawals and that compliance monitoring programmes consider the quality of advice being provided in this area. Supervisory reviews and file audits can help identify weaknesses before they result in customer complaints or regulatory concerns.
From a TCF perspective, the objective should be to ensure that clients understand the consequences of their decisions and receive advice that supports their long-term financial interests.
Looking ahead
As the two-pot system matures, FSPs should continue to focus on the fundamentals of good advice and sound compliance practices. Key priorities include strengthening advice processes, maintaining robust recordkeeping, ensuring effective disclosures and helping clients understand the long-term implications of accessing retirement savings.
While the two-pot system has changed the way retirement savings can be accessed, it has not changed the core responsibility of advisors: ensuring that clients receive appropriate advice, clear disclosures and fair outcomes when making decisions that may affect their long-term financial wellbeing.