November 01, 2023

Time to pause and rethink 🤔

Many South Africans were hoping that the new two-pot retirement system would be in place by March next year.

Although parliament must approve the final date of implementation, National Treasury is proposing the reforms be delayed until March 2025. An earlier date could result in administrative chaos. Some funds won’t be ready and the South African Revenue Service (SARS) also needs more time to prepare, parliament heard.

For those who have suffered severe financial setbacks from the pandemic and our very troubled economy, delayed access to their savings may be devastating.

But for others who may be able to avoid raiding their savings, the time to pause and reflect could prove invaluable. A little time and information could show just how harmful drawing from retirement savings could be for their future income and that there may be a better fix for their financial problem.

Retirement fund counsellors will hopefully be trained to help members see that staying invested far outweighs spending on things you want rather than need - like a newer car, a kitchen makeover or a holiday. Withdrawing reduces what you contribute as well as the compounding growth on those contributions. Contributing around 15% of your income over your entire working life is the key to getting a pension equal to 60% to 75% of your salary as a pension. Many members were already off target for a decent pension due to previous withdrawals when changing jobs. Accessing more will take them further off target.

The additional year may also force members with debt problems to explore other more lasting ways of solving them.

Access to your retirement savings may bail you out if you are in debt, but without a plan to live within your means and prepare for financial emergencies, you are likely to incur more debt. Borrowing continually from your future income to repay debt is not a sustainable fix.

If you are likely to default, or have already defaulted on your debt repayments, you can’t wait a year for the implementation of the two-pot system. You should not put your head in the sand and wait for the inevitable legal process and repossession of your home or car. It will end up costing you much more. Downscale before you are forced to do so and impair your credit report.

If you are eyeing your retirement savings just for things you want, the time to pause and reflect will be good. Explore how you can set goals and save for them without derailing your retirement.

Laura du Preez
Editor Smart About Money

Helping you think it through

Stay informed

What the latest proposals mean for your retirement savings

In addition to the likely delay in implementing the two-pot system, important aspects of the reform have been clarified. How tax will be applied if you withdraw, for example. And the maximum amount of your existing savings that will be used to “seed” your savings pot when the new system is implemented.

The latest proposals could impact your thinking on whether to access your savings or not. Read more: Tweaked two pot system likely to be delayed.

Take action

Know your options when you are unable to repay your debt

Job losses, reduced income, rising interest rates and increased living costs could all be reasons why you find yourself unable to repay your secured debts like your car finance or home loan. But they should not be reasons to hide. When debts get handed over, legal costs are high and the outcome is rarely good. It is better to get help before you default.

Value reset

Always wishing for more
may be part of the problem

A constant desire for status and more things that we believe will make us feel better can cause financial and other problems. Accumulating money without a goal is also a bit meaningless. Whatever your beliefs, giving some thought to the role of money in your life is worthwhile. Read more: Can money play a spiritual role in your life?

A problem shared is a problem halved

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