Worry over new retirement system planned for South Africa

South Africa’s retirement industry does not believe that Treasury will be able to implement South Africa’s new two-pot retirement system by March 2023, as it involves ‘an enormous amount of work’. 

This is one 0f the key findings of Sanlam’s latest benchmark survey of South Africa’s retirement industry. The 2022 survey polled 83 principal officers of stand-alone funds, 100 participating employers in umbrella funds, 15 asset consultants, 15 healthcare consultants, six top umbrella fund sponsors and 500 online consumers.

Treasury’s proposal envisages a ‘two-pot’ system under which members would be allowed to access up to a third of their net retirement fund contributions and accrue investment returns on an annual basis to provide short-term financial relief.

This will be accompanied by the requirement that the remaining two-thirds are preserved over the long term, which will improve retirement outcomes for the majority of fund members relative to the status quo.

Sanlam’s survey data shows that just over half of members (consumers) who took the poll were aware of the two-pot system but 56% said they did not agree with it, with 29% saying if the law was changed they would ‘definitely not’ access their retirement funds early and 20% saying they would ‘probably not’. 

In addition, 62% of respondents said, if they could, they would increase their retirement savings. 

Concern over new system 

Experts have warned that South Africans will need to have access to professional retirement benefit counselling and financial coaching if they are given access to their savings earlier.

“While we should be cautiously optimistic about how retirement funds can help members who are facing challenging times financially, we applaud the National Treasury for its prudent, carefully-considered and consultative approach because this concession needs to be implemented with great care,” said Dumo Mbethe, chief executive at Momentum Corporate.

“If it drives the wrong behaviour, it can have dire long-term consequences for fund members who are already saving far too little for retirement as it is.”

Early access to retirement savings has significant implications because, for most South African income-earners, their employer’s retirement savings and insurance benefits are often the only savings and insurance they have, Mbethe said.

“The reality is that most income-earners are already saving far too little for retirement. This is largely due to a widespread tendency to withdraw retirement savings when changing jobs to fulfil short-term financial needs and wants.

“With the pandemic, we saw an increase in members getting retrenched or switching jobs and promptly withdrawing their retirement savings as cash.

“The introduction of early access to retirement savings could increase long-term pressure on the national social security infrastructure and reduce the pool of investments available for the development of the economy. It’s key to have the right guardrails in place to avoid a situation of short-term gain, long-term pain.”


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Worry over new retirement system planned for South Africa