The introduction of the South African two-pot retirement system on 1 September 2024 had financial experts worried. Primarily due to the ‘two-pot’ naming convention – one pot for saving and one pot for withdrawal – billions has flowed out of peoples’ retirement planning, because that’s what the pot is meant for. And fund managers believe it will lead many into a worsening financial position in the long run if left unchecked, reports Daily Investor.
SOUTH AFRICAN TWO-POT RETIREMENT SYSTEM
Momentum reported last month that more than 150 000 withdrawal claims had been made, to the approximate value of R2.5 billion. And that’s just one company. Several asset managers across pension and retirement funds have reported sizeable South African two-pot retirement system withdrawals in the last six weeks.
As a reminder, the South African two-pot retirement system divides retirement contributions into three components. A one-third savings component can be withdrawn at any point before retirement. While the remaining two-thirds cannot be touched until retirement age. The new structure is meant to help people with liquidity in the short term.
WHAT DO PEOPLE NEED THE MONEY FOR?
Below is a summary of the reported figures:
| COMPANY | WITHDRAWALS | VALUE |
| Alexforbes | 110 000 | R1.5 billion |
| Momentum | 150 000 | R2.5 billion |
| Old Mutual | 125 000 | R1.7 billion |
| TOTAL | 395 000 | R5.2 billion |
Apparently, people are using access to the withdrawal pot to deal with financial strain/debt (25%), their children’s education (20%) and emergencies (21%). So, at least people are not withdrawing money simply because it’s available to them. Nevertheless, due to the financial insecurity in the country, misuse of the South African two-pot retirement system can still compromise your retirement plans in the long run, say experts.
A spokesperson from Momentum explained that 40% of withdrawals came from members aged 40-49 years old. So, whatever those people withdraw today, they will probably not have sufficient time to make up for it in the years they have left to work. Even if you’re under severe financial pressure, asset managers caution you to seek financial advice first, before withdrawing from the South African two-pot retirement system.
WHAT ELSE CAN YOU DO?
Basically, withdrawing from your retirement savings should be a last resort. Many people are unaware of the long-term consequences of withdrawing, including the tax implications which will significantly reduce your return on withdrawal anyway. With improved communication and education, financial services companies hope to change the mindset of those wanting to withdraw early.
Nevertheless, there is still optimism over the South African two-pot retirement system and how it can strengthen the country’s economy in the long term. A cap is still placed on withdrawals to protect long-term savings (remember two-thirds of every contribution cannot be touched). However, repeated withdrawals could still create a snowball effect and diminish your retirement security, reports Business Tech.
DIFFERENT INCOME GROUPS
Discovery reports it is seeing different withdrawal behaviours from different income groups. For instance, 40% of low-income earners, earning less than R120 000 annually (R10 000 per month), are withdrawing. Meanwhile, only 4% of high-income groups, earning beyond over R1-million per year, (R84 000 per month) have withdrawn.
Nevertheless, low-income citizens may have higher withdrawal rates, but their eligibility is lower. Savings-pot withdrawals require a R2 000 minimum in savings, a threshold many low-income earners cannot not meet. Presumably, when they do breach the threshold, they will take retirements funds out. But at what cost in the longterm?
WOULD YOU CONSIDER WITHDRAWING EARLY FROM YOUR RETIREMENT?
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