Two-pot retirement system: 48% of South Africans want to withdraw

On 1 September, 48% of South Africans who are members of pension funds want to withdraw funds under the new two-pot retirement system.

The system was designed to preserve their retirement savings and not to give members early access to some of their retirement savings.

This shows a clear gap in implementing the new system. Financial education is needed for members of pension funds to ensure they think carefully before withdrawing some of their retirement funds.

Research from Worth, a company that drives financial behavioural change, shows that 48% of working consumers will or are considering withdrawing from their new savings pot on 1 September, with the majority citing this as an opportunity to repay or reduce debt and loans (51%) or cover everyday expenses (43%).

ALSO READ: Two-pot retirement: Substantial work still needs to be done before 1 September

Of these consumers planning to withdraw, 68% do not have up to R10 000 saved in an emergency fund. In addition, 54% of those withdrawing indicated that they plan to do it every year and a further 15% said they will if they need the cash.

It is also worrying that more than half of these consumers have also considered resigning before the two-pot retirement system kicks in to access all of their retirement funds prematurely.

Consumers between rock and hard place

Gary Kayle, CEO at Worth, says. their research indicated that while 56% of consumers withdrawing funds are concerned about the impact on their future retirement, they are also very much between a rock and a hard place, with no other means of accessing funds.

“This has opened up a very real concern for South Africans as our lack of savings culture is threatening our ability to retire.”  

The research also indicated that 42% of employers or HR teams have not provided any support, information or education around the two-pot retirement system and of those who did, a third of employees still do not feel confident to make a decision about whether or not they can or should withdraw some of their retirement funding after 1 September.

ALSO READ: How the two-pot retirement system works when South Africans resign

Hayley Parry, money coach and head of education at Worth, says the research shows that employees contributing towards some form of retirement product are largely under-educated around retirement as a concept and sadly, many will be withdrawing only out of necessity.

“This speaks volumes to what we already know: that the cycle of debt and needing to access retirement money will continue if we do not intervene with some timely financial education to help consumers improve their cash flow, reduce debt and build up their own emergency funds, to ensure they do not have to dip into their newly accessible savings pot,” Kayle says.

Employees need more education on two-pot retirement system

Parry says the research actually shows that more than half of employees need more information on the two-pot retirement system and how it works, what it will cost in terms of tax and fees and in future in terms of the impact on their ability to retire.

“But more critically, respondents indicated that they need more guidance on reducing financial stress as well as alternatives to accessing emergency funds so that they do not have to withdraw, which illustrates the dire financial pressure they endure.”

South African consumers expect immediate relief from their retirement funds to ease the cost-of-living crisis that has been exacerbated by the current interest rate cycle. Sadly though, many stand to be disappointed when they realise they may not have enough funding in the first place to make a withdrawal and that the take-home amount will be reduced significantly by both taxes and fees that need to be covered first.

“We encourage South Africans to sit tight, stay lean and try get by without dipping into this money while at the same time, encouraging employers to start driving home stronger education around these critical aspects to help employees make the right decisions and secure their retirement,” Parry says.