Warning to South Africans with a pension fund

Alexforbes warned that, with heightened activity surrounding two-pot withdrawals in the new tax year, scammers and fraudsters may increasingly target retirement fund members.

The financial services firm said that, since implementing the new two-pot retirement system on 1 September 2024, South Africans have shown significant interest in accessing their retirement savings. 

Under this new system, retirement contributions are split into two “pots” – a savings component and a retirement component.

Once a year, it allows South Africans to withdraw a portion of their retirement savings every year before retirement while another portion is kept in a vested “pot”.

The retirement “pot” remains inaccessible until retirement age, ensuring that a significant portion of savings is preserved for retirement income.

To understand the new system’s impact, Alexforbes undertook a comprehensive survey of over 8,200 responses and data analysis covering over one million members.

It found that, since the system came into effect, South Africans have requested to withdraw around R7 billion from their retirement funds. Many of these claims came in September alone.

Now that the new tax year is here and members may withdraw from this savings pot again, Alexforbes said it has already received over 33,000 savings pot withdrawal claims from members.

“Our research shows that individuals who claimed in the previous tax year had a high likelihood of claiming again in the new tax year, which began on Saturday, 1 March,” the firm said. 

“This already appears to be the case, given the significant numbers of claims in just four days.”

The firm said this high level of claims so early in the tax year again highlights that many South Africans are financially stretched. 

A previous survey done by Alexforbes showed that 80% of claimants used their withdrawals for debt repayment and essential living expenses.

However, indications from banks suggest that some individuals are using the withdrawals for consumption. 

“Either way, this trend highlights the difficult financial conditions many individuals are facing,” it said.

“While this new system provides much-needed financial relief for members facing short-term financial constraints, Alexforbes urges members to consider the long-term impact of withdrawing from their retirement savings and to remain vigilant against cybercrime threats.”

The firm highlighted key considerations for South Africans before they withdraw from their two-pot savings.

The first is the impact on long-term retirement planning, as withdrawing funds from the savings pot means reducing the capital that will compound over time to provide financial security in retirement. 

Calculations from Momentum Savings revealed that withdrawing money from your retirement fund under the two-pot system will negatively impact your finances more than using a credit card for the same amount and paying it off over five years. 

“Members should carefully assess whether they genuinely need the funds or if alternative financial solutions are available,” Alexforbes said.

The second consideration is the tax consequences related to withdrawing from two-pot savings.

Withdrawals from the savings pot are subject to taxation as part of a member’s annual income.

“This could result in a higher tax bracket and an increased tax liability. Members are encouraged to seek financial advice to fully understand the implications,” Alexforbes warned.

The third consideration is the risk of cybercrime and fraud, particularly at the start of the new tax year, when so many people will be looking to withdraw funds from their savings.

“With heightened activity around withdrawals, scammers and fraudsters may increasingly target retirement fund members,” the firm warned.

Alexforbes also strongly advised retirement fund members to:

• Only use official platforms like AF Connect to process their claims
• Never share their personal information, including banking passwords or OTPs, with anyone claiming to assist with withdrawals
• Be cautious of unsolicited and unexpected messages or emails that appear to come from financial institutions

“The introduction of the savings pot is a positive step toward financial flexibility for South Africans. However, its success depends on responsible use,” Alexforbes said. 

“Alexforbes urges all retirement fund members to consider their long-term financial well-being, carefully evaluate their need for immediate withdrawals, and take the necessary precautions to protect themselves from cyber threats.”