Johannesburg – With South Africa’s new two-pot retirement system set to launch on September 1, financial experts are cautioning citizens against hasty withdrawals from their savings pots.
The Pension Funds Amendment Bill, signed into law by President Cyril Ramaphosa on Sunday, introduces a dual system comprising a savings pot and a retirement pot. While the savings pot allows for annual withdrawals, experts warn that these withdrawals can significantly impact long-term retirement savings.
“The new system will essentially allow you to ‘ink your cross’ annually, giving you the option to make a partial withdrawal from your retirement funds,” said Belinda Carbutt from Allan Gray. “While this is naturally a tempting thought, it is important to understand the intent is for emergency access and should not impact the way you think about your long-term retirement savings.”
Carbutt emphasized the tax implications of withdrawing from the savings pot, noting that it will be taxed at the member’s marginal tax rate. Moreover, such withdrawals can significantly reduce the overall retirement benefit.
An Allan Gray simulation showed that a member who consistently withdraws from the savings pot could see their retirement benefit reduced by 53% compared to someone who maintains a long-term focus.
Alexforbes has also raised concerns about the impact of withdrawals on replacement ratios, warning that accessing the full annual withdrawal limit could reduce the replacement ratio from 75% to 50%.
The new system is designed to provide some flexibility for individuals, but experts are urging caution and careful consideration before making any withdrawal decisions.
The draft Revenue Second Amendment Bill, which is still under finalization, will provide further details on the new system.
