A recent survey on South Africans’ views of the new two-pot retirement savings system reveals widespread financial pressure, with 79% of those considering a withdrawal indicating they would use the funds to repay debt.
Respondents’ perceptions of their financial health also showed cause for concern. Only 11% rated their financial health as excellent, 43% as average, and 24% as poor.
The survey was conducted by JustMoney.co.za, a platform that helps South Africans make good money choices. Some 6,252 responses were received, shedding light on consumers’ awareness, concerns, and plans regarding this shift in retirement savings.
Awareness of the system
Survey results indicate that 50% of respondents learnt about the two-pot system from news and media outlets, while 36% were informed by their employers. However, 9% reported they had not received any information, signalling an opportunity to continue educating the public on this important topic.
Fifty-seven percent of respondents currently have a pension fund or retirement annuity (RA), with 80% of these products tied directly to their employment. Ten percent had more than one retirement product, both as part of their employment package and independently.
Access to savings sparks mixed reactions
The ability to access a portion of retirement savings before retirement garnered mixed feelings. Some 57% of respondents said they felt comfortable with this access, while 29% were concerned about the impact on their long-term savings.
When asked if they would consider withdrawing funds, nearly half (49%) indicated they would, although a significant 23% remain hesitant, citing concerns about future retirement stability.
Potential use of withdrawals and impact on saving habits
Among those considering withdrawing funds (respondents could select multiple answers for this question), 79% said they would pay off debt, 10% would “spoil” themselves or their family, and 8% would use the money for spending as they see fit.
Of the 15% of South Africans who responded to “other” in terms of spending, many indicated they would pay for basic needs, such as school fees, uniforms, and books. Others would build or renovate a property – “make my house a home” – start a business, or pay medical bills.
Interestingly, 53% believe that the two-pot system could encourage them to save more, seeing partial access as a way to stay committed to retirement planning without feeling locked in.
Barriers to retirement saving
For respondents without pension funds or RAs, 35% cited affordability as a barrier, while 43% noted their employers do not offer pension packages. However, 46% of respondents expressed newfound interest in retirement funds due to the accessibility of a savings portion, showing promise for increased participation.
Withdrawal trends
Of the 30% who had already requested a withdrawal, 23% found the process straightforward, saying it was “excellent”, “amazing”, and “short and easy”.
The other 7% reported that withdrawal was “hectic and frustrating”, with “unprofessional employees” giving differing explanations, and processing taking longer than expected.
Several were taken aback by the tax implications. Some respondents noted that the process was “stressful as SARS took it all”, and “this two-pot system is unfair... SARS takes most of it, and we, the poor, get poorer”.
On balance, however, the JustMoney survey reveals cautious optimism about the new two-pot retirement system, concludes JustMoney operations manager Sarah Nicholson.
“Many South Africans view it as a potential solution to balance short-term financial needs with long-term retirement goals,” Nicholson notes. “The ability to access a portion of savings may enhance financial flexibility for some, and even encourage saving.”
It was notable that nearly a third (31%) of respondents said they planned to retire between the ages of 50 and 60, which is unrealistic for most South Africans, while 19% said they had not considered when they would retire.
“This highlights the critical need for education on how to manage money, and the true cost of retirement, if South Africans are to make informed saving choices and avoid financial shortfalls later in life,” says Nicholson. “Pension withdrawals must be made thoughtfully to protect future retirement stability.”
Nicholson offers the following guidance regarding two pot withdrawals.
Assess the emergency. Only withdraw funds if you are facing a genuine financial emergency. This system is designed as a safety net, not a source of funds for discretionary spending.
First explore alternatives. Before tapping into your retirement savings, look into options such as budgeting adjustments, negotiating payment plans, or using other forms of credit cautiously. Protecting your retirement must be a priority.
Consider the long-term impact. Withdrawing funds reduces the amount that can grow for your retirement. Compound interest works best with larger amounts left untouched over time, so withdrawals can significantly lower your final savings.
Understand the tax implications. Calculate the tax burden you’ll incur and evaluate if the remaining amount will genuinely solve your financial issue.
Caroline Naylor-Renn, Chief Operating Officer at 10X Investments, concurs. “More emphasis must be placed on highlighting the long-term negative financial impact of withdrawing funds early. It’s far more beneficial for individuals to leave their money invested and allow it to grow, rather than tapping into it for short-term needs. Two-pot funds, in particular, should only be accessed in cases of genuine financial emergency."
Graphic 1 Savings access: Some 57% of respondents said they felt comfortable with access to a portion of their savings before retirement, while 29% were concerned about the impact on their long-term savings.
Graphic 2 Savings withdrawal: Nearly half of respondents (49%) indicated they would consider withdrawing from their savings pot, although 23% were hesitant, citing concerns about future retirement stability.
Graphic 3 Savings use: Some 79% of those considering a withdrawal indicated they would use the funds to repay debt, revealing widespread financial pressure.
Get the latest issue of FAnews