OPINION | SA's new two-pot retirement system (and why it's really three pots)
To benefit from compounding, you must save and invest for as long as possible. Accessing any part of your savings before retiring will result in the loss of compounding and negatively affect your overall future wealth, saysIn 2024, South Africa will finally see another major change to our retirement system. Although known as the"Two Pot system", in reality, and for most, it will be a new three-pot system.
In South Africa, one can imagine a situation where an individual or a family’s situation becomes so dire that the current utility of each rand in their savings pot far outweighs its future utility. Having access to a third of your savings should in theory at least create some resilience and support when most needed.
It is important to note that if you withdraw money from your savings pot, a means test won’t be conducted. However, this withdrawal amount will be added back to your annual income, and you will be taxed at your marginal tax rate. That said, when you retire, you have the option to either receive the funds in your savings account as a lump sum or transfer them to your retirement account, which will allow you to withdraw these funds at preferential tax rates.
Younger savers, specifically those with retirement annuities, with savings of R300 000 or less will be put to the test. On the implementation date, they will essentially gain access to 10% of their total savings which they might not need but might withdraw regardless. This short-term gain could have material long-term wealth creation implications.
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