Two-pot system a big risk for the old age, warns Solidarity


Solidarity has issued a serious warning about the so-called two-pot system with which annual withdrawals from a person’s retirement money are now possible.

It follows after pres. Cyril Ramaphosa’s signing of the Revenue Laws Amendment Bill last Saturday – something that will require feverish preparation of pension funds and fund administrators before the system comes into effect on 1 September 2024.

From this date, employees will be able to access their pension funds’ savings pot, provided there is a balance of at least R2 000 in the fund to withdraw. The savings pot represents one-third of the total fund, while two-thirds is kept for retirement and must remain untouched. Only one withdrawal is allowed per year.

Although the system also aims to give employees access to funds for emergencies, it certainly involves risk, warns the deputy general secretary for strategy at Solidarity, Marius Croucamp.

“The biggest risk is that there will be much less retirement money available on the day of retirement for the person who withdrew money from his or her savings pot. They will then possibly have to get additional income from somewhere to be able to take care of themselves in their old age.

“The temptation will be great to easily take money out of the savings pot because it will be possible to do it annually. It must also be borne in mind that money withdrawn will be taxed at a person’s marginal tax rate because it is considered income. This can then cause the person to fall into a higher tax scale,” says Croucamp.

He warns that people should make sure their tax affairs are in order and up to date before considering withdrawing money from the savings pot.

In cases where home loans have been granted by these funds, he warns funds to make sure there is enough money to cover the particular loan or guarantee before piggy bank payouts are considered.

“Retirement funds must also amend their fund rules to comply with the requirements of the two-pot system. “Since there are hundreds of retirement funds in South Africa, the authorities will have to work hard to approve all the amendments before 1 September 2024,” says Croucamp. “However, the biggest concern remains retirement provision, with only 6% of South Africans able to retire comfortably and more than 70% who will need to find additional income after retirement to stay alive.

“It is calculated that you have to work for 41 years and save at least 15% of your income every month in a retirement fund just to get an amount equal to 75% of your last salary on a monthly basis at retirement,” says Croucamp. .

According to him, frequent withdrawals of retirement money before retirement will make it almost impossible to provide adequately for your retirement, and thus poverty can be their forecourt in people’s old age.

It remains extremely important to work responsibly and judiciously with retirement money, despite this amendment to the law.