Pensions: cultivate a saving culture

It seems like good news that our economy – and specifically our household income – could get a shot in the arm of up to R79 billion next month when the two-pot retirement system comes into operation.

The Reserve Bank estimates this boost – R31 billion at the low end and R79 billion at the higher – could add 0.1 to 0.3 percentage points to gross domestic product (GDP) growth in 2024 and 2025.

ALSO READ: Two-pot retirement system could boost household income by up to R79 billion

Another bonus is an expected boost to tax revenues as the SA Revenue Service taxes the pension pot withdrawals.

Although pre-retirement withdrawal will boost consumption and growth over the short term, this system should, over the long term, increase the pool of retirement savings as employees will be unable to withdraw all their pension fund savings on resignation.

Such as system has become necessary because South Africans do not have a culture of saving – studies indicate that just 6% of those in employment will have enough money to retire.

Making matters worse is that almost half of all adults struggle to grasp basic financial concepts like interest rates and savings.

ALSO READ: The practical implications of the two-pot retirement system

To be fair, more people are struggling financially as unemployment hits record levels and price inflation far exceeds wage increases.

So, withdrawing early from a retirement pot will be highly tempting to many people as a financial lifeline.

The boost in consumption which will undoubtedly flow from the withdrawals may make a dent, even if small, in unemployment but, in the longer term, the overall pension pot will be smaller, meaning there will be a crunch as people near retirement age.

This shows that South Africa needs to make financial education a priority.

That is partly what mathematical literacy is designed to do in the school curriculum… so perhaps the “intellectuals” need to stop being so dismissive of the subject.