27 Mar Two-pot retirement system: A balanced view.
The introduction of the Two-Pot retirement system on 1 September 2024 brings with it a number of concerns, most notably the potential erosion of retirement funding in a country where savings are already low.
However, one must take a balanced view as having access to a portion of retirement savings has some merit if treated responsibly. In addition, when people are faced with an emergency purchase – fixing a car or for medical expenses – a simple calculation will show that the cost of credit is much higher than the returns that funds return, keeping in mind that unserviced or partly serviced debt has a compounding effect of its own.
We all saw the impact of job losses during COVID-19 where households were left with little to no income, and the two-pot system would have helped families to survive the storm more easily.
The second area deals with the high levels of over-indebtedness in South Africa, where many households are forced to borrow money at exorbitant interest rates simply to put food on the table or pay for school fees.
When one is over-indebted, there are only a few realistic options available, with one of them emerging through the Two-Pot retirement system. Those in need of extra financial help can either:
- Seek relief from a reputable Debt Review company, where interest rates are signif icantly reduced to create cash to live on and set tle debt relief in 5 years or so. In fact, you could have extra cash available to still ser vice retirement savings.
- Use part of the Two-Pot savings component to settle all or a part of the debt.
The third option could be a weighted combination.
In truth, over-indebted South Africans can only save for their retirement if they are able to extract themselves from over indebtedness. It follows that debt and retirement savings are inter twined and more education is needed to help people to make the right choices.
Bianca S Moyo
Senior Manager: Communications
Salt Employee Benefits
MoyoB@salteb.co.za
salteb.co.za