Will I be part of the two-pot retirement system?

Dear reader,

The two-pot system is set to be implemented on 1 March 2024. This will be implemented going forward and will not impact the funds allocated to your preservation fund before this date. Therefore this will not have an impact on your funds placed into a preservation fund before implementation date.

“A Fund Member’s retirement funds which existed immediately prior to 1 March 2024 will be placed in what is known as a “vested pot”. Funds in the vested pot will remain subject to the present rules.[1] No contribution may be made to the vesting pot after the two-pot system has been implemented, except in the case of provident fund members who were 55 years old or older on 1 March 2021, whose pension benefit regime will remain unchanged despite implementation of the new system.” – Werksmans Attorneys

The proposed two pot system will allow members of pension and provident funds, as well as retirement annuity investors, to access a portion of their investment before reaching retirement age (without having to resign).

The proposed two-pot system will split future contributions (made from 1 March 2024):

• The first pot is the longer term pot – the retirement pot essentially. This will be two-thirds of your monthly contribution.
• The second pot (one third of your contribution) will be the “savings pot. These funds may be withdrawn on an annual basis (once a year). The minimum amount allowed is proposed to be R2 000 p.a.

I would be very careful in optimising this benefit though. We are already dealing with a major retirement crisis in South Africa with only 6% of individuals being able to retire comfortably.

According to the Alexander Forbes Member Insights™ for 2021, only 9% of members preserve their retirement savings when changing jobs. This in turn leads to very poor retirement outcomes as the average replacement ratio is only 31%. This means that for every R1 000 earned by a member before retirement they will only replace R310 of income at retirement.

Not all responsibility is placed on the performance and fee structure of your investment portfolio (although these are extremely important components), but investing sufficiently as a percentage of your income to ensure you will reach the required replacement ratio to continue your lifestyle (or at least just be able to afford your expenses) is imperative.

The average investor is unfortunately saving much less than they are required to reach a realistic outcome at retirement. I believe there needs to be a reset in priorities here, as too much is spent in the average household on housing, vehicles and debt (and other expenses) and too little on ensuring a comfortable financial future.