SOUTH Africa’s two-pot retirement system comes into effect on 1 September 2024 is a good idea but the speed at which it needs to be implemented could cause problems, says 10X Investments CEO Tobie van Heerden.

President Cyril Ramaphosa signed into law the two-pot retirement system on 1 June 2024, which enables people to make emergency withdrawals from their pension funds once a year.

The Revenue Laws Amendment Act was specifically designed to alleviate financial distress by enabling individuals to access a portion of their retirement contributions, a key component of the two-pot retirement system.

Under the changes to the law, people are allowed to withdraw 10% of their retirement savings, capped at R30 000, once a year.

Van Heerden says a mechanism to get funds out of pensions was needed, but he is concerned that the legislation was pushed through too fast, as it meant the financial services sector only had three months to enact the changes.

“The legislation was pushed through too quickly without thinking about the consequences of the operational impact.”

Even so, the changes to the pension law is seen as a much-needed move, especially in light of the financial difficulty many South Africans are dealing with.

This difficulty can be seen in the economy unexpectedly shrinking by 0,1% for the first three months of 2024, when compared against the corresponding period.

Stats SA said weaker manufacturing, mining and construction drove much of the downward momentum on the production side of the economy, while the expenditure side witnessed a decline across all components.

The sluggish economy has not alleviated unemployment, which now stands at 32,9%, and has seen consumers increasingly turn to debt to make ends meet.

DebtBusters said earlier this year that persistently high interest rates and inflation continued to erode consumers’ disposable income, while a lack of any meaningful economic growth is constraining salaries.

Given the difficult economic environment, van Heerden still cautions people against treating their pension funds as a savings account.

“I have a simplistic view that retirement savings should be seen as a tax. It’s money that you are paying for something down the track.”

Treating pension funds like a savings account compounds the difficulty of people not saving enough for their retirement.

For example, 10X Investments’ 2023/24 Retirement Reality Report found that only 6% of people were making sufficient provisions for retirement.

Van Heerden says when it comes to planning for retirement, people should increase their contributions to their pension funds, as these extra payments over time will considerably increase the size of their nest eggs.

They should also examine the fees they are paying to the administrators of their pension funds. These fees add up and can easily reduce the size of the retirement fund.

Investing in conservative funds early in one’s career could also be costly. Though high-growth investments appear risky, they outperform conservative investments over time.
10X Investments is a financial service provider that offers low-fee retirement products.

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