“South Africans are not saving enough for retirement!” screech the headlines at least once a year, followed by industry pundits such as myself citing shocking statistics such as “90% of retirees are unable to maintain their standard of living after retirement”. Hair-raising stats like this, taken from a January 2022 study by Genesis Analytics and the Financial Sector Conduct Authority (FSCA), are published year after year but have done little to scare under-saving South Africans to change their ways. This is evidenced by the same study’s finding that two-thirds of retirement fund members have less than R50,000 saved. If the definition of insanity, according to the wisdom of Albert Einstein, is doing the same thing over and over and expecting different results, we need to try something new to incentivise 90% of South Africans to save adequately for retirement. This is why I welcome the government’s new “two-pot” retirement system, which is now set to be introduced on March 1 2024 as opposed to the initial and somewhat unrealistic date of March 1 2023. It is a long-overdue revamp of a system that is clearly not effective, a fact that was reiterated in November when SA slipped even further down in the Mercer CFA Institute Global Pension Index. SA dropped three places this year: down to 34 out of the 44 pensions systems the index benchmarks. There are still many details that need to be finalised before the new two-pot system is promulgated along with the annual budget in March 2023, but the broad aims already agreed on will put structures in place to entice South Africans not only to save for retirement, but preserve these savings until retirement age. And it will provide South Africans with another accessible tax-free savings vehicle once they’ve maxed out their annual or lifetime tax-free savings allowance. Enforced preservation with more flexibility The two-pot system will apply to all members of pension and provident funds, umbrella funds and retirement annuity funds who were under the age of 55 as of March 1 2021. It is designed to address the achilles heel of the current retirement system: members are able to cash in their entire savings if they change or lose jobs. This all-or-nothing preretirement withdrawal rule radically reduces members’ chances of achieving their retirement goals. And since early withdrawals count towards each member’s one-off R500,000 tax-free lump sum withdrawal allowance, large preretirement withdrawals sabotage a member’s retirement outcome. The two-pot system will change this by splitting retirement savings: two-thirds of contributions will go into a retirement pot and one-third into a savings pot. The retirement pot cannot be touched until retirement, even if you lose or change your job, and must be annuitised at retirement. “The new 'two-pot' retirement system is designed to address the Achilles' heel of the current retirement system, which allows large preretirement withdrawals that sabotage a member’s retirement outcome.” Kyle Hulett, head of investments at Sygnia Asset Management If you would like to set up an appointment with our Financial Advisor contact Sandra, email: service@daberistic.com tel (011)658-1333 Written by: Kyle Hulett Source: Timeslive
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