Two-pot holiday warning for South Africans

Many South Africans are dipping into their two-pot savings account for funds over the festive season, but this may turn out to be a poor idea.

Therèse Havenga, Head of Business Transformation at Momentum Savings, explained how much going into your retirement savings can really cost someone.

For example, she looked at three scenarios for accessing roughly R30,000 for a holiday.

The first sees someone use their two-pot money.

Introduced in September 2024, the Two-Pot system sees retirement savings placed into savings and retirement pots.

The savings pot holds one-third of retirement savings from implementation and is accessible before retirement.

The retirement pot holds the remaining two-thirds and is only accessible upon retirement.

In Havenga’s example, the following information must be considered:

• You’ll retire in five years. You have R42 000 in the savings component of your retirement annuity and you contribute R3 000 per month.

• Let’s also assume you earn R30 000 per month. This means the tax rate you usually pay is 26%.

• The transaction costs R200 (withdrawal fee) plus the 26% tax you pay on the withdrawal.

• You will receive R30 880 when you withdraw the full amount in your savings component.

If you have left the money to grow in your retirement annuity, it would have grown to  R74 370 at a 12% growth rate before fees. This is called the opportunity cost.

To pay back the actual cost and opportunity cost over the next five years, one will need to increase their monthly contribution by another R917 to restore their original maturity value.

This results in a total repayment of R55 020 for the withdrawal.

Credit card

If one’s credit card is 21.75% (repo rate of 7.75% plus 14%) and they borrow R30,000 now, they will have to repay R825 per month over the next five years.

Thus, to get R30 000 will cost you R49,500, meaning you essentially waste R19,500.

Save up

If you had been saving R370 per month for the last five years, and your investment grew at a rate of 12% before fees, you would now have R30,000.

Thus, the R30,000 payday will only cost you the R22,200 you contributed to your savings.

Looking at the results, it’s more damaging for someone to take out of their long-term retirement savings than to use their credit cards.

That said, saving upfront is the best way to prepare for the festive period. It will not only cost less than using a credit card or taking out your retirement savings but will be less than the actual cost (R30,000).

“The sums show just how much one benefits by saving upfront for big expenses like holidays, especially fancy holidays,” said Havenga

“Now I must just do my homework in advance so that my last-minute bookings don’t cost me more after I had diligently saved for a holiday.”

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