SA’s under-educated workforce at risk of fumbling retirement through Two-Pot retirement opportunity

On Sunday the 22nd of July 2024, President Ramaphosa signed the Two-pot Retirement Bill into law, indicating a massive shift in South Africa’s retirement policy outlook.

“While we welcome this announcement by the president given its intention, it is critical that we support this change in legislation with the right financial education and create real behavioural change, if we hope to see a shift in South Africans ability to retire,” says Hayley Parry, Money Coach™ and Head of Education at Worth.

“Our research, undertaken just last week, has shown that South Africa’s workforce who are contributing towards some form of retirement product are largely under-educated around retirement as a concept and sadly, many will be withdrawing only out of necessity.”

Worth research shows that 48% of working consumers will/are considering withdrawing from their new Savings Pot on 1 September, with many citing this as opportunity to repay or reduce debt and loans (51%) or to cover everyday expenses (43%). Of these consumers planning to withdraw, 68% don’t have up to R10 000 in emergency funds set aside to use in case of a financial emergency.

“This speaks volumes to what we already know – the cycle of debt and needing to access retirement money will continue if we don’t intervene with some timely financial education; helping people improve their cash flow, reduce debt and build up their own emergency fund, so that they don’t have to dip into their newly accessible Savings Pot,” states Gary Kayle, CEO at Worth.

The stats speak for themselves in this regard where, 54% of those withdrawing have indicated that they will do so every year, and a further 15% say they will too if they need the cash. Worryingly, more than half of this cohort have also considered resigning prior to the 2-Pot system kicking in in order to access all of their retirement funds prematurely.

“Our research has indicated that while 56% of consumers withdrawing are concerned about the impact of this withdrawal on their future retirement, they are also very much between a rock and a hard place – with no other means of accessing additional funds. This has opened up a very real concern for South Africans as our lack of savings culture is threatening our ability to retire,” continues Kayle.

Furthermore, the research indicated that 42% of employers or HR teams have not provided any support, information or education around this incoming legislation. Of those that have, a third of employees still don’t feel confident in making a decision re whether or not they can or should withdraw some of their retirement funding after September 1st.

“In fact, the research shows that more than half of employees need more information on the 2-pot retirement system and how it works, what it’s going to cost them now in terms of tax and fees, and in future in terms of the impact on their ability to retire. But more critically, respondents have indicated that they need more guidance on reducing financial stress as well as alternatives to accessing emergency funds so that they don’t have to withdraw – which is evident of the dire financial pressure that they are under,” says Parry.

South African’s are expecting immediate relief from their retirement funds to ease the cost-of-living crisis that has been exacerbated by the current interest rate cycle. Sadly though, many stand to be disappointed when they realise they may not have enough funding in the first place to make a withdrawal, and that the take-home amount will be reduced significantly by both taxes and fees that need to be covered first.

“We encourage South Africans to sit tight, stay lean and try get by without dipping into this money while at the same time, encouraging employers to start driving home stronger education around these critical aspects – to help employees make the right decision and secure their retirement,” concludes Parry.