Anderson: Two-pot system to double retirement success

South Africa is gearing up for a significant change in its retirement system with the introduction of the two-pot retirement system set to take effect on September 1, 2024. This new system, aimed at doubling the retirement success of individuals, comes at a crucial time for the country as it faces economic challenges and a low savings rate among its population. The implementation of this system will see retirement fund members having access to two separate pots of funds, with one pot allowing limited annual withdrawals and the other being fully preserved for retirement. To delve deeper into the implications and benefits of this upcoming change, John Anderson, Executive for Enablement and Solutions at Alexforbes, joined CNBC Africa for a detailed discussion. Anderson shed light on the estimation of withdrawals under the new system, indicating that around 50 to 70% of retirement fund members in South Africa are likely to make withdrawals. This is expected to result in between 5 and 600,000 withdrawals, with average amounts ranging from 2 to 5,000 rand, totaling between 50 and 100 billion in the industry. While acknowledging the short-term negative implications of these withdrawals, Anderson emphasized the long-term benefits, stating that retirement fund members could expect their pensions to be two to two and a half times better than the current scenario. One of the key points discussed was the tax implications of early withdrawals. Anderson explained that the higher tax rates applied to withdrawals serve as a disincentive to withdrawing funds early, as monies contributed to retirement were tax-deductible and had been accumulating tax-free until withdrawal. By opting to keep funds preserved for retirement, individuals could benefit from more favorable tax treatment, encouraging them to leave the money invested for the long term. The impact of these early withdrawals on the savings industry was also highlighted, with Anderson mentioning that only a small percentage of South Africans can currently retire comfortably. The new reform aims to increase this figure in the long term, with individuals potentially seeing their pensions grow significantly over the years. While the immediate future may see a spike in withdrawals, Anderson urged individuals to consider preserving their funds for as long as possible to benefit from compound interest and improved retirement outcomes. In conclusion, the shift to a two-pot retirement system in South Africa brings both challenges and opportunities for retirement fund members and the industry as a whole. While short-term withdrawals may lead to cash flow challenges and increased claim volumes, the long-term benefits in terms of improved pensions and economic growth are substantial. As the country prepares for this significant change, it is essential for individuals to consider the long-term implications of their retirement savings and make informed decisions to secure a better financial future.