South Africa Reserve Bank Anticipates R31 Billion Boost for Household Incomes from Two-Pot System

The Reserve Bank estimates that the upcoming two-pot retirement system, set to take effect in September, will increase household disposable income by between R31 billion and R79 billion in the fourth quarter of 2024. This boost is expected to contribute an additional 0.1 to 0.3 percentage points to GDP growth in both 2024 and 2025.
In an economic research note, Reserve Bank researchers Nkhetheni Nesengani, Riaan Ehlers, Mish Choonoo, Annelie Van Niekerk, and Theo Janse van Rensburg outline the potential impacts of the new system. They project that the two-pot system will reduce the government debt-to-GDP ratio by 0.5% in 2024/25 and by 1.0% in 2025/26.
The researchers anticipate that the partial pre-retirement withdrawals allowed under the two-pot system will temporarily boost consumption and economic growth. However, they also expect the reforms to enhance the overall pool of retirement savings, as employees will not be able to withdraw their entire pension funds upon resignation.
In a high-withdrawal scenario, the researchers found that GDP growth could increase by 0.3% in 2024 and 0.7% in 2025. Similarly, the government debt-to-GDP ratio could improve by 1.1% in 2024/25 and 2.3% in 2025/26 due to the new system.
Despite these positive projections, the researchers caution that higher withdrawal rates could deplete retirement funds available at retirement age. They also note that the projected impacts are modest compared to pension reforms in other countries, such as Chile, where changes allowing larger withdrawals led to a 14% decline in pension assets relative to GDP.