South Africans who are members of a pension or provident fund at their jobs or have a retirement annuity will be subject to the new two-pot retirement system from the proposed date of 1 September 2024. News24 reported, “The two-pot system would allow people to access a third of their pension savings before retirement.”

But what does this mean? It means that cash-strapped South Africans, who were not allowed to access any part of their retirement savings until they reached retirement, can now access part of these savings before retirement age. “This will allow limited withdrawals of up to a third of one’s retirement funds,” according to financial services firm Liberty. 

“Under the current regime, if a member of an occupational pension or provident fund leaves their job, they are able to withdraw the full balance of their savings in the fund, subject to tax,” according to fund manager Allan Gray. “Sometimes this money is desperately needed, especially when an employee is dismissed or retrenched and has no other source of income. However, even when changing jobs with no reduction in income, the vast majority of South Africans choose to cash out their pension or provident fund savings. While the funds may be going towards pressing and valid needs, the result is that most South Africans get to retirement with woefully little capital built up in their retirement funds and not much to fall back on in terms of other savings or assets.”

There is undoubtedly a danger of not having enough funds to retire with the current system. The two-pot system will comprise two systems, i.e. a savings system (from which members may make limited withdrawals subject to conditions) and a retirement system (to be accessed at retirement age). Momentum explained some benefits of the new savings system:

  • Retirement funds are protected until retirement age.
  • Members can access some of their savings in financial emergencies.
  • It will assist members in making better financial and retirement savings decisions while protecting their money. 

In an interview that explain held with Mike Nicholson, who is the owner of CAD Financial Services and an advisor and broker of the financial products of large financial institutions in South Africa, we asked:

Is this new two-pot retirement savings system better for South Africans?

“It’s an improvement on the current rules. Many people leave employment to access their full retirement fund, and then seek re-employment with the same employer. This will stop that from happening.”

What could be a potential downfall or problem with this new retirement savings system?

“The second problem that isn’t discussed, is that many employers don’t have pension or provident funds in place for their employees, and the onus falls on the employee to make provision for their retirement. With the current economy and salary levels, many do not do this.”

Read more here about the state of the economy in South Africa:https://explain.co.za/2024/01/30/why-is-south-africas-economy-growing-so-slowly/ 

Bear in mind that many South Africans are already struggling with the current cost of living, and only some have funds to save for retirement. In summary, the two-pot retirement savings system has a proposed start date of 1 September 2024. This aims to protect members’ savings until they reach retirement and also enables members to access some of their funds in financial emergencies.