Pension alert for South Africans earning less than R20,000 a month
South Africans earning less than R20,000 per month are making up a disproportionately large portion of withdrawals from retirement funds, raising concerns about the long-term financial implications.
According to data presented by the Financial Sector Conduct Authority (FSCA), the portion of withdrawals per annual pensionable salary category are as follows:
- Less than R59,988: 4.63%
- R60,000 to R119,988: 25.05%
- R120,000 to R179,988: 15.67%
- R180,000 to R239,988: 25.82%
- R240,000 to R359,988: 13.83%
- R360,000 to R599,988: 12.4%
- R600,000 to R959,988: 1.77%
- R960,000 and above: 0.83%
The data, therefore, reveals that over 65% of withdrawals come from individuals with pensionable salaries ranging between R5,000 and R20,000 monthly.
While this offers short-term financial relief, it poses significant risks to their retirement security.
The breakdown of withdrawal trends highlights a clear pattern.
The highest percentage of withdrawals is from those earning between R15,000 and R20,000 per month, followed closely by individuals in the R5,000 to R10,000 range.
Conversely, South Africans earning over R600,000 annually make up less than 3% of total withdrawals despite representing 12% of taxpayers.
This stark contrast illustrates how financial pressures disproportionately impact lower-income earners, compelling them to tap into retirement funds to manage immediate financial challenges.
By November 2024, nearly 2.2 million applications to access retirement funds had been submitted, with more than 1.9 million approved.
These withdrawals totalled a massive R35 billion, reflecting the depth of economic strain among South Africans.
However, financial experts are sounding the alarm about the long-term costs of this short-term solution, particularly under the two-pot retirement system, which allows partial access to savings.
Lerato Thwane, Head of E-Commerce at XDS, warns that while the two-pot system introduces flexibility, it also opens the door to significant risks.
For individuals grappling with financial difficulties, the ability to access part of their retirement savings may seem like a lifeline.
However, this decision can deplete the resources needed to maintain financial independence in retirement, creating a ripple effect of long-term instability.
Tshwane explains the danger using a real-world scenario: consider a professional in their mid-40s who withdraws from their accessible pot to settle pressing medical bills or other debts.
While this action provides immediate relief, it also reduces the amount available for investment growth over the next 20 years.
When retirement arrives, they may face a smaller-than-expected nest egg, forcing them to seek part-time work or depend on family for financial support.
The one-time withdrawal, intended to solve an urgent problem, can snowball into a lifetime of financial insecurity.
The two-pot system, which divides retirement savings into an accessible pot and a preserved pot for retirement, is designed to balance immediate needs with long-term security.
However, experts stress that individuals must approach withdrawals cautiously. Early access diminishes the power of compound interest—a critical factor in building substantial retirement savings.
Even a small withdrawal can have a significant impact, as it reduces both the principal amount and the compounding returns over time.
For South Africans in lower-income brackets, retirement funds often represent their primary, if not sole, financial safety net for old age.
Tapping into these savings prematurely could leave them vulnerable to economic hardship later in life, especially in a country where the social safety net is limited.
Financial planners urge individuals to explore alternatives, such as budgeting, debt consolidation, or even seeking financial counselling, before withdrawing from their retirement funds.
The accessibility of funds under the two-pot system is a double-edged sword.
While it provides a way to manage immediate financial needs, it requires disciplined planning to avoid compromising future stability.
Experts recommend consulting financial advisors to weigh the long-term implications of any withdrawal decision.
Without careful foresight, individuals risk trading short-term relief for long-term hardship.
In a challenging economic climate, the temptation to access retirement savings is understandable, but South Africans are urged to consider the bigger picture.
The funds meant to sustain them in their later years are finite. Once depleted, rebuilding a comfortable retirement becomes an uphill battle, leaving many to face a future of financial uncertainty.
Loading ...
