Keep your savings pot invested

Retirement fund members will have access to a part of their retirement fund benefits in case of emergencies or financial hardship when the two-pot system is implemented. But even though you will be able to withdraw money from your savings component, you don’t have to. We recommend not to withdraw anything from your retirement fund so that you can retire more comfortably.

Let’s look at an example.

Mrs Naidoo, Mr Smith, and Ms Dlamini are all 20 years old. From 1 September 2024 each of them
contributes R3 000 every month (increasing the amount by 5% every year) into their own retirement
fund for 40 years. They are all members of the same retirement fund and received 10% growth per year.

From 1 September 2024, all their contributions will be split in two: Two-thirds will go to their retirement component, which they may not use until retirement, and one-third will go to their savings component, which they can access once a year.

At age 60, Mrs Naidoo, Mr Smith, and Ms Dlamini each have R19,3 million in their retirement component.

Mrs Naidoo, however, withdrew half of her savings component every five years (seven withdrawals, totalling R1,6 million). She ends up with only R1,2 million in her savings component at age 60.

Twenty years into saving, at age 40, Mr Smith withdrew half of his savings component – an amount of R515 001. At age 60 the value of his savings component is R6,2 million.

In contrast, Ms Dlamini did not make any withdrawals and has R9,7 million in her savings component at retirement. She therefore has R29 million at retirement.

While the two-pot retirement system is designed to improve the preservation of retirement savings by restricting members’ access to it when changing jobs, they must understand the consequences of withdrawing money from the savings component before retirement.

Accessing the savings pot will ultimately affect an individual’s retirement savings. It is always recommended to speak to a financial adviser to fully understand the impact before making a withdrawal.

For more information about the two-pot system, visit our website here: https://www.momentum.co.za/momentum/business/two-pot-retirement-system

*Note: Individuals earning more than R240 000 a year will pay tax at a marginal rate of between 26% and 45% on early withdrawals from their savings component. This would likely be more than the tax you will pay if you only withdraw from your savings component when you retire. In this case the tax rate would vary between 0% and 36%.