EXPLAINER: Economist unpacks imminent two-pot retirement system
A change in our retirement savings system is due to come into effect in just over a week, and economists are warning that even the smallest withdrawal is big in the long term.
Under the two-pot retirement system, South Africans will have the option to access a portion of their pension funds before they retire.
It comes into effect on 1 September.
Economist Dawie Roodt explained the reasoning for the change.
"Sometimes people have financial difficulty, and quite often, people resign because they simply want to get access to this money. That is the idea of this new system that we have - allow people to get access to this money, but at the same time prevent people from taking all their monies.
"All your savings will be paid into two pots. One pot will be accessible before you retire. The other pot will not be accessible until the day you retire."
READ:Two-pot retirement system signed into law
Roodt says the new system has some limitations.
"I think the minimum amount of money that you can withdraw is something like R2,000, for example. Remember that you will have to pay tax on any money you withdraw from this fund, which can be quite a lot. So be careful, you are not going to get all your money. You will only get some of the cash after taxes.
"But there is also a maximum amount of money that you can withdraw, and the maximum amount of money is typically about R30,000. You are not allowed to withdraw more than that. It is far better not to withdraw anything but rather leave it there for the day that you resign."
He explained what could happen if you opt to withdraw from your pension funds.
"Even if you withdraw a relatively small amount of money that you have access to, it will have a huge impact over a couple of years, and your retirement money will be significantly less than you actually think.
"So, don't think that if you withdraw R2,000 now, it will only have an R2,000 impact in 10 or 20 years’ time. It is probably going to have an impact of a couple of tens of thousands of rands because of the effect of compound interest over time."
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