Daily Maverick
Dailymaverick logo

Business Maverick

Business Maverick, South Africa

Eight days to go – ‘More education’ needed around two-pot retirement reform

Eight days to go – ‘More education’ needed around two-pot retirement reform
Neesa Moodley
By Neesa Moodley
20 Aug 2024
Facebook
0
With only eight working days to implementation, research from the 2024 Old Mutual Savings and Investment Monitor shows that many South Africans have no idea of how much in retirement savings they have, and how the current retirement regime works. They also have unrealistic expectations when it comes to the two-pot retirement system.

Michelle Acton, retirement reform executive at Old Mutual Corporate, told a media roundtable this week that despite efforts by the financial services industry and media to educate the public, “much more work” needed to be done to improve public understanding of the two-pot retirement system.

“Only 52% of those surveyed in the OMSI Monitor this year knew how much they had in their current retirement savings. And a number of consumers, including one financial adviser, were under the impression that they would be able to withdraw a third of their retirement savings on 1 September,” she said.

This is an incorrect assumption. On 1 September, your savings pot will have zero funds. To address the fact that many may want to make withdrawals immediately, there will be “seed funding”. The seed funding will be 10% of your retirement savings, up to a maximum of R30,000. This money will come out of your vested pot. 

The minimum withdrawal is R2,000, so if you have less than R20,000 in your retirement savings, you will not be able to make any withdrawals. The money is also unlikely to be available immediately because retirement fund administrators are likely to be facing a quantum of withdrawal requests never seen before.

The R30,000 maximum withdrawal (depending on how much you have saved currently) is also a once-off maximum. From 1 September 2025, you can make one withdrawal from your savings pot each year. The minimum withdrawal will be R2,000 and the maximum will be whatever the amount in your savings pot is. For example, if you were saving R3,000 a month towards your retirement, R2,000 would go towards your retirement pot and R1,000 would go to your savings pot. After one year, you would have R12,000 in your savings pot and you could choose to withdraw the entire R12,000 plus the returns you would have earned on that money in 12 months.

Acton says while a huge focus seems to be on members being able to draw down from their retirement savings once a year, the forced preservation of the savings in the “retirement” pot is a positive development. 

“Members will have access to their savings pot once per tax year, provided the withdrawal amount is at least R2,000. This provision ensures that funds are available for emergencies without encouraging frequent withdrawals. Additionally, withdrawals from the savings pot will be taxed at the individual’s marginal tax rate, further discouraging unnecessary withdrawals and promoting long-term preservation,” she said.

Number of people wanting to withdraw drops


One of the positive results emerging from the 2024 OMSI Monitor is that the number of South Africans likely to withdraw funds from their retirement savings has dropped significantly by 10%, from 62% in 2023 to 52% in 2024.

Vuyokazi Mabude, head of knowledge and insights at Old Mutual, says this shows that people have a better understanding of the importance of saving for retirement, and they are feeling more confident about their retirement. 

“Higher confidence appears to also typically correlate with a positive perception of two-pot, while working South Africans who have lower confidence in the adequacy of their retirement savings display greater scepticism. Lower confidence is more common among lower-income groups and individuals younger than 50, who are also more likely to withdraw their retirement savings,” she said.

Mabude said those with a better understanding of the system (57%) tend to appreciate its benefits.

Other findings from the Monitor on the topic of retirement include:

  • Only 26% of working South Africans are ‘very confident’ that they have enough savings for retirement, compared to 38% of higher-income earners (those earning more than R60,000 a month).

  • Awareness of the two-pot retirement system is highest among those aged 50 and above (68%), compared to just 51% among those aged 18-29.

  • Saving for a comfortable retirement continues to be the top savings goal among employed South Africans, followed closely by saving for a rainy day and paying off debt. DM

Categories:

Tags: