Retirement fund warning 

Public servants have been warned against withdrawing from their retirement savings when the two-pot system starts in March 2024. 

This warning was issued by former acting director-general of the National Treasury Ismail Momoniat in an address to the Federation of Unions of South Africa (Fedusa) last week. 

Momoniat urged public servants to be aware of the negative implications of withdrawing funds early from their retirement savings, saying they should seek financial advice beforehand. 

“I’m hoping none of you withdraw funds when the government allows you to withdraw funds because if you do, you’re going to end up very poor later and rely on someone in your family to help you,” Momoniat said. 

“When you withdraw funds, you are suddenly surrounded by vultures, and you’ve got to watch out for that.”

The two-pot system will allow public servants to withdraw a maximum of R2,000 per year from a retirement savings component.

However, Momoniat said this should only be done in an emergency. He warned that withdrawing from retirement savings can harm long-term financial security.

From 1 March 2024, South Africans will be able to put their savings into two separate retirement pots.

Up to one-third of all retirement contributions will go into a “savings pot”, accessible once a year.

A more standard “retirement pot” will receive at least two-thirds of the contributions made after 1 March 2024, which will only be accessible at retirement.

The idea of introducing this pot is to give South Africans access to their retirement savings in the case of an emergency. 

The new system will also discourage people from resigning to access their pensions – which has become more common in recent years, especially during the pandemic.

Momoniat said South Africans generally do not save enough, and retirement funds hardly yield 30% of what members earned before retiring.

“I know it’s tough, even for people who earn high incomes. If I weren’t forced to save through the collective bargaining agreement and the GEPF, I would not have saved. There are a million better things to do.”

Old Mutual Corporate executive Nceba Pupuma echoed Momoniat’s warning, saying that the two-pot system needs to be managed carefully, or members will end up borrowing from their future. 

He said that those who withdraw from their savings for non-essential reasons will be the ones who pay the price in the long run.

Keith Peter, Advice Manager at Old Mutual Personal Finance, said the new system has potential drawbacks despite its appeal.

“The savings pot, while promising on the surface, should primarily be seen as a reservoir for emergencies. The temptation of short-term financial alleviation can lure consumers into frequent withdrawals,” Peter said.

“However, such actions can drastically erode the capital necessary to generate an income during retirement.”

“This issue is exacerbated if the monthly contributions made to the fund, including the retirement and savings pots, are insufficient to meet the desired retirement income.”

“On top of all that, the annual withdrawals from the savings pot will be taxed at the member’s marginal rate, increasing tax liability.”