FNB joins the chorus of warnings for South Africa
FNB is the latest financial services provider to warn retirement fund members about the new two-pot retirement system.
The new system will have a savings pot and a retirement pot.
The savings pot will hold one-third of all retirement savings and be accessible before retirement.
A retirement pot will hold the remaining two-thirds of retirement savings and will only be accessible after retirement.
A third vested pot will hold all the savings up until the implementation date of 1 September 2024 and follow existing legislation.
The savings pot will also get 10% of the total funds (maximum R30,000) from the vested pot as seed capital.
The seeding into the savings pot will be a once-off, and future funding will come from one-third of all future contributions.
Although the savings pot can be accessed once a year, there are some applicable rules:
- You can only access it once a tax year (1 March – end February)
- The minimum withdrawal amount is R2,000
- Withdrawals will be taxed in line with your marginal tax rate
- SARS will prescribe the amount of tax to be paid via a tax directive issued to the administrator
- SARS is legally allowed to collect any outstanding taxes or penalties from your savings withdrawal benefit
Although many South Africans see the new system as an opportunity to access retirement savings early, FNB has warned that members should think carefully about the potential impacts that accessing savings early could have.
FNB’s latest Retirement Insights Surveys show that less than 10% of South Africans retire comfortably.
Ester Ochse, Product Head at FNB Integrated Advice, believes that the system is still used to preserve the majority of retirement savings.
“Taking money out of your retirement savings can slow down the growth of compound returns. Even if it feels like it’s only a small withdrawal for now, it could make a big difference to the amount that you can fully access when you retire,” said Ochse.
“So, it’s best to only take money out if it’s an emergency and you have no other options. It’s also critical to consult a qualified financial advisor who can quantify the impact of withdrawing your retirement savings.”
Although it may be tempting to dip into the savings pot, doing so will significantly impact one’s long-term retirement stability and retirement lifestyle.
For instance, a 45-year-old with a current who has a current retirement value of R500,000, contributing R1,000 per month (which increases at 5%) and has a retirement age of 65 will lose R409,000 if they regularly dip into their savings:
| Scenario | Total Retirement Value | Difference |
| If they don’t dip into the savings pot and let it grow until she is 65 | R3,168,000 | N/A |
| If they make a once-off R100,000 withdrawal for an emergency 15 years before retirement | R2,952,000 | R216,000 |
| If they decide to reduce her annual expenses by withdrawing the maximum amount each year until retirement | R2,759,000 | R409,000 |
Thus, one must weigh the short-term gain against the potential long-term hardships of withdrawing from retirement funds.
It also shows the importance of building emergency savings so that one does not need to go into retirement funds.
Several other financial institutions, such as Nedbank, Allan Gray, and Coronation, have issued similar warnings to their clients.
The South African Reserve Bank (SARB) has warned that a high withdrawal scenario could see R100 billion exit retirement funds, exerbating South Africa’s retirement problem.
Read: Kidnappers on the hunt for banking details in South Africa – and refunds aren’t guaranteed
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