Debt Rescue and other experts are warning members of the public to be cautious about dipping into the two-pot pension fund retirement system as this could lead to them having less money for their retirement years.
The two-pot retirement system will open for applications on September 1 and will allow for members to withdraw up to 10% of their retirement savings with a maximum of R30 000 at the marginal tax rate.
Neil Roets, CEO of debt counselling company Debt Rescue, said the two-pot retirement plan poses a significant risk to the financial security of citizens.
“This system may ultimately leave many people without enough money to support themselves in their later years. The ability to withdraw money from one pot may seem appealing in the short term. However, the long-term consequences of such withdrawals can be detrimental.”
Roets said by dipping into their savings pot prematurely, individuals are effectively robbing their future selves of crucial retirement funds.
“Without the discipline to preserve their savings for retirement, individuals run the risk of depleting their funds and facing financial hardship later in life.
Many people already struggle to save an adequate amount for retirement.
“Although the intention of the two pot retirement plan is good, in the sense that it aims to alleviate financial distress, it would have been better if the government rather embarked on a quest to provide citizens with financial education, empowering them to prevent falling into the trap of over indebtedness in the first place.”
Waldo Krugell, an economics professor at North-West University, said the two-pot system means that the retirement funds will transfer 10%, up to a max of R30 000, from what you had as contributions on March 1 to that savings pot. “You will be able to make one withdrawal per year. So far this year the maximum that anyone will be able to draw is R30 000 and they will be taxed at their marginal rate.”
Krugell added that an early withdrawal is bad for your eventual retirement benefit.
“There is just less to grow. Particularly if young people take some of it. It should be left to grow. If you are close to retirement, it matters less.”
Krugell said that the Treasury thinks this is going to be a good idea, because there are many people who resign early to get their pension money and then start over at the next job.
“Under the new system the maximum they would be able to get is 1/3 and 2/3 will remain in their fund until retirement age.”
Matthew Parks, acting national spokesperson for labour giant Cosatu, said workers will no longer need to resign to access a portion of their savings.
“Two-thirds of future savings will be preserved for retirement or in the event of retrenchment. When workers cash out, they will continue to be taxed as has always been the case though this will now be linked to workers’ personal income tax rate and not a flat 18%, which had favoured the rich”.
Parks said that each worker will now have the choice of what to do as the circumstances facing workers and their families differ.
“If workers need relief they can access a part of their savings. If they don’t need relief then they can leave it for when they do but the point is to allow workers to make their decisions based on their needs.”
The Mercury