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The proposed two-pot retirement system will bring short-term relief to those with financial challenges but will also potentially cause long-term pain if not handled with care. 

According to Thys van Zyl, head of product development at Everest Wealth, the option to withdraw retirement money in tough times will potentially bring immediate much-needed relief to many, but this will have to be done with great caution in terms of its long-term impact on retirement savings. 

Statistics show that only about 6% of South Africans will one day be able to retire comfortably while the rest will depend on their children, the state or other possible sources of income. 

The two-pot system will allow members of pension and provident funds, as well as retirement annuity investors, to access a portion of their investment each year, before they reach retirement age and without resigning. 

The second draft of the Revenue Laws Amendment Bill has been issued for comment and the two-pot system will come into force on 1 March 2024. The two-pot system comprises a savings pot and a retirement pot. A third of contributions go to the savings pot and workers can access it once a year, while two thirds go to the conservation pot to which workers can access upon retirement. There is also a third pot in which already existing retirement money lies, which is handled in terms of the old rules. 

“It will obviously be very tempting to have the opportunity to withdraw money every year, especially in times of financial difficulty. With rising costs of living due to skyrocketing interest rates and the load shedding crisis, many consumers are struggling to make ends meet and this can be an easy way to gain access to money that would otherwise not be available. 

“If money is withdrawn on a regular basis, this will result in this worker having much less money saved over a long period of time than someone who has not touched their money at all. That money that was withdrawn could have grown a lot over the specific period and it can make a significant difference in the amount that is finally available for retirement. Therefore, regularly withdrawing your savings will have a compounding impact over time and is definitely not something that one should continue to do or even do regularly.” 

Van Zyl also points out that workers who withdraw money from their retirement fund will most likely not be in a position to put the withdrawn money back so that it can continue to grow. 

The two-pot system will essentially attempt to increase retirement savings by minimizing early withdrawals as a worker no longer has to change jobs or resign to access the money. The other purpose is to allow early access to retirement savings for unforeseen events. 

“However, those who decide to withdraw from their retirement money should be well aware of the possible consequences and should preferably talk to a financial advisor about the challenges that this may have in retirement. It can be devastating if a worker withdraws retirement money for luxuries or to try to maintain a certain standard of living, while the focus should instead be on making sufficient provision for retirement.”