The progress made in household financial resilience in the second quarter of the year can largely be attributed to withdrawals from the two-pot retirement system, without which household finances would have stagnated under restrictive monetary policy.
This is according to Dr Roelof Botha, an independent economist who led the compilation of the Altron Fintech Household Resilience Index for the second quarter of 2025.
The economist slammed finance minister Enoch Godongwana’s decision to lower the official inflation target to 3% and the South African Reserve Bank monetary policy committee’s continued restrictive monetary policy.
Botha told Business Times that while lower interest rates played a role in easing pressure on households, the index registered an improvement in the second quarter as increased access to income was seen in the data.
He said the index picked up, but with an important caveat. “One of the important reasons why the index improved quite nicely, [rising] 2.3% [to just over 113] in real terms, is because of the two-pot system.”
“That two-pot system is really interesting [because] Sars originally budgeted for R5bn in additional revenue. It’s important for people to realise that if they want to dip into their pensions, they are going to pay the marginal income tax. Sars eventually got R13bn.”
The purpose of the index is to provide a snapshot of the financial position of the average South African household. It includes 20 indicators that look at the abilities of households to earn income from a variety of sources.
“If you calculate the average annual percentage change in the AFHRI, from the moment they started raising interest rates until the second quarter of this year in real terms, it’s 0.2%. It is for all intents and purposes so close to zero, we can call it zero. If you take out the effect of the two-pot system, then it’s negative.”
Though the AFHRI showed a healthy year-on-year improvement of 2.3%, the average annual increase in the financial resilience of households since the MPC’s interest rate hiking cycle started is barely above zero. Modest declines in the prime rate have nevertheless assisted the recovery of the AFHRI, the report said.
“It is important to consider the impact of the so-called ‘two pot’ system.”
He said since its introduction in September 2024, the two-pot system, which allows early access to a portion of a person’s retirement savings, has already made a noticeable impact on South Africa’s economy.
“The amended regulations provide for a capped portion of retirement contributions that can be placed into a savings pot, and that can be accessed before retirement, and a retirement pot, which retains a larger portion of retirement savings until a person stops working.”
The report said the impact of the two-pot system has also been visible in the AFHRI, with the indicator for lump-sum pension fund withdrawals during the fourth quarter of 2024 and the first quarter of 2025 recording year-on-year increases of 35% and 40%, respectively.
You don’t need to have a PhD in economics like me to understand that if you’re going to expand credit facilities, you expand demand in the economy, and you can’t buy stuff that doesn’t get produced. And if you produce stuff, you can’t do that without labour
— Dr Roelof Botha, economist
Botha said in the short term, the two-pot withdrawals provided income for households facing financial challenges as they accessed money for emergencies.
He said while reductions in interest rates were welcomed, the country needs more aggressive cuts for the economy to grow at a rate where it can create meaningful jobs.
He called SARB governor Lesetja Kganyago’s remarks at the latest MPC announcement that monetary policy would remain restrictive a “tragedy”. He said fiscal and monetary policy should drive the demand for goods and services in the country.
“You don’t need to have a PhD in economics like me to understand that if you’re going to expand credit facilities, you expand demand in the economy, and you can’t buy stuff that doesn’t get produced. And if you produce stuff, you can’t do that without labour.”
According to the SARB Financial Stability Review, released this week, credit extension to the corporate sector has continued to rise while household borrowing has remained relatively subdued.
“The growth in corporate credit was mainly driven by investment in renewable energy and borrowing for working capital purposes. The domestic interest rate cutting cycle that started in late 2024 has provided some relief for South African households.
“Household debt as a share of disposable income moderated to 62.4% at June 2025 from 62.7% in March 2024. Household debt-service costs as a percentage of disposable income eased to 8.8% in June 2025 from 9.3% at the beginning of 2024.”
The review said that while this marks an improvement, these levels remain above their long-term averages, indicating ongoing financial pressure, and banks mitigate vulnerabilities from increasing household default rates by tightening lending standards, which leads to lower credit extension.
The Mercer CFA Institute Global Pension Index, which rates adequacy, stability and integrity of retirement systems globally, gave South Africa’s retirement income system an overall grade of C, with a score of 51.0, which was up from 49.6 in 2024.
“The overall improvement can primarily be attributed to the introduction of the two-pot retirement system, which enhances preservation and harmonises the treatment of retirement benefits. South Africa’s system continues to be recognised for its strong integrity, although adequacy and sustainability remain areas for further development.”
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