New Two-Pot Retirement System: A boon or bane for long-term retirement savings?
20 Oct, 2023

Michelle Acton, Retirement Reform Executive at Old Mutual


Despite the doubts over short-term tapping of savings, the benefit, in the long run, is worth the immediate access, argues Michelle Acton, Retirement Reform Executive at Old Mutual 


In South Africa, where pressing financial needs constantly intersect with long-term planning, the imminent arrival of the Two-Pot Retirement System on March 1, 2024, has sparked a thoughtful debate about the delicate equilibrium between immediate financial necessities and securing a comfortable retirement.


This new system, while well-intentioned, raises pertinent questions about whether it might inadvertently encourage short-term access to pension funds, potentially compromising the foundation of long-term retirement savings.


The cornerstone of the Two-Pot Retirement System lies in its aspiration to provide individuals with the flexibility to access a portion of their pension savings before retirement. Essentially, it enables a type of emergency fund, that long-stable pillar of sound personal financial management that allows consumers the breathing space to fund unexpected expenses instead of turning to expensive debt alternatives.


This intention, laudable as it is, prompts us to consider whether such access might inadvertently deter savers from staying committed to the very essence of a pension fund – building a nest egg that ensures a dignified retirement. This system will likely amplify the existing culture of short-termism, where individuals prioritise present needs over future financial security. South Africans are expected to dip into those accessible pots in significant numbers, accessing up to one-third of their available future retirement savings post the 1 March effective date.


At the same time, however, Two-Pot also counters the more significant problem – full access to pension savings. The real enemy is the current pension fund system that allows members to cash out completely when changing jobs. Most members end up using all their savings and have to start all over again, missing out on valuable compound interest that builds over time, resulting in insufficient savings to fund retirement. The National Treasury estimates that only 6% of South Africans can look forward to a comfortable retirement.


The Two-Pot’s short-term access is the lesser of the two evils. At the very least, it solves one problem: more South Africans can retire better.


Financial education is the key. 


Education then becomes the bedrock of navigating this problem. Indeed, the real challenge lies in helping individuals understand that their financial choices today wield far-reaching repercussions for their twilight years. While immediate financial relief might seem alluring, the actual value of the Two-Pot Retirement System lies in its ability to empower individuals to make informed decisions that strike a harmonious balance between the present and the future.


This leads us to consider the immediate financial struggles many face in South Africa. The Two-Pot Retirement System’s initial seeding of 10% capped at R 25, 000 from the existing pension fund into the savings pot offers a welcome respite for those grappling with inflation and high living costs. Yet, it is essential to recognise that this injection, while providing momentary relief, should not be misconstrued as a panacea for all financial ills. Instead, it is a steppingstone toward a more secure financial future based on prudent financial planning and saving.


Critics might question the Two-Pot Retirement System’s efficacy in ensuring short-term relief and long-term prosperity. But this system does not pretend to be the silver bullet to today’s current woes. Instead, it seeks to establish a foundation upon which future financial security can be built. It is not merely about granting access but cultivating a sense of responsibility over one’s financial journey.


A financial behavioural shift? 


The Two-Pot Retirement System’s intriguing dual-potency approach, allowing for controlled access while preserving the essence of retirement savings, raises a pertinent question: Can this approach inspire a behavioural shift in individuals toward a more holistic understanding of their financial wellness? This remains the crux of the matter—will this system, supported by the proper education and awareness, transform impulsive financial decisions into more calculated moves?


The system will likely force members seeking to access their savings to take a far more active role in their retirement savings stewardship. Fund members are far more likely to have to find out how much they can access, how much they have in their accessible savings pot, and to be aware of how much their savings have grown yearly. This “forced” interest will be more effective than any consumer education drive, extolling the virtues of future retirement savings benefits.


As we stand on the cusp of this revolutionary shift in pension management, we must embrace the nuances. The Two-Pot Retirement System encapsulates a journey toward a more secure financial future. It demands that individuals understand that their choices today ripple across decades and that prudence is not a momentary virtue but a lifelong practice.


The road to financial security, guided by the Two-Pot Retirement System, hinges on our ability to find a balance between immediate needs and long-term dreams. It provides an invaluable safety net in that it guarantees that all pension fund members can, at the very least, count on two-thirds of their savings post-1 March 2024 being ringfenced until retirement.


We must tread this path with awareness, education, and the wisdom to recognise the actual value of the Two-Pot Retirement System – not as a shortcut but as a compass guiding us toward financial wellness in a retirement savings crisis. While not immediately apparent, a sober analysis indicates the answer is emphatic – this new system is a monumental step forward in the battle against the financial struggle that most South Africans face when they retire.





@Michelle Acton
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