South African households are always encouraged to save more for retirement purposes. Many of us don’t think so far ahead, but we should take into consideration the financial struggle we will face if we don’t start saving early for retirement – and by early, I mean in our early 20s.However, between car, bond, and educational expenses, it’s very easy for retirement savings to be the last thing on our budget list.
Government considers and sympathises with the financial challenges faced by many due to the impact of Covid-19. Before the two-pot system was proposed, many challenges remained. One of them being that, over the years, members did not preserve enough money for retirement. This could’ve been happening due to a lack of information and knowledge about retirement savings and the fund itself. Another challenge is that people are only allowed to access all their retirement funds when they resign.
Just around 80% of retirement fund members have the problem whereby they cash out their entire retirement benefits when they are changing jobs in order to provide short-term financial relief. The proposal also stated that the portion that is accessible would be available to the member at all times, but the funds can only be withdrawn once a year, reliant on the funds’ ability to effect the withdrawals, and this withdrawal is limited to a minimum amount of R2 000.
The aim is to increase future retirement savings. While the proposal offers some relief short-term for members, we need to consider that members who access their retirement savings prior to retirement, reduce the probability of being able to sustain themselves during their retirement. We need to consider that retirement at the age of 65 can last up to the age of 85. This is a 20-year gap that needs to be funded by the member’s retirement savings.
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