Warning on early withdrawal from South Africa’s two-pot retirement system

Financial experts are worried about early withdrawals from South Africa’s two-pot retirement plan. Introduced on 1 September 2024 as a way to give members early access to a portion of their retirement savings, a new survey has set alarm bells ringing. Because nearly half of employees wish to withdraw funds early.

However, should they do so, the concern is they will not have enough money to preserve their savings in the long run. And, as we already know, half of South African retirees admit they’ll have to continue working well past the age of 60. Moreover, whether in a part- or full-time capacity, nearly 40% of all current pensioners still work to make ends meet in this tough economic climate.

EARLY WITHDRAWAL FROM SOUTH AFRICA’S TWO-POT RETIREMENT

Research from financial education website, Worth, shows that 48% are considering early withdrawal from South Africa’s two-pot retirement scheme. The majority say an early withdrawal is an opportunity to repay debt and loans (51%). While 43% say it will cover everyday expenses, reports The Citizen.

Furthermore, of the consumers planning early withdrawal from South Africa’s two-pot retirement, 68% have less than R10 000 in savings. In addition, 54% said they plan to do so every year if they need access to cash. Of the consumers surveyed, only 56% were concerned about the impact early withdrawal might have on their retirement. Many say they’re stuck between a rock and a hard place with rising debt. And they will access the funds as soon as possible.

NO CULTURE OF SAVINGS IN MZANSI

As a result, Worth says this lays bare South Africa’s lack of savings culture. Also, that there’s a general lack of education on the two-pot retirement system. 33% of employees say they don’t feel confident to make a decision about whether or not they should withdraw funds after 1 September.

The cycle of debt and need for quick access to money will only continue if we do not intervene, warns Worth. There needs to be timely financial education to help consumers improve their cash flow, reduce debt and build up their own emergency funds. Specifically, consumers don’t know what it will cost in terms of tax and fees for an early withdrawal from South Africa’s two-pot retirement.

However, Worth warns that many stand to be disappointed when they realise they won’t have enough funding in the first place to make a sizeable withdrawal. Plus, a take-home amount will be significantly reduced due to taxes and fees. Therefore, it encourage South Africans to, “Sit tight, stay lean and try get by without dipping into their retirement funds after 1 September.”