KEY POINTS:
South Africa will implement the two-pot system for retirement funds on 1 September 2024, splitting pension fund contributions from that point on into a savings pot (one-third, accessible annually before retirement) and a retirement pot (two-thirds, accessible only at retirement). On 31 August 2024, 10% of investors’ retirement funds capped at R30,000 will be transferred to members’ savings pots, which they will be able to access.
The South African two-pot system aims to prevent premature fund depletion and improve long-term financial security, learning from Chile and Peru’s experiences where lax withdrawal rules led to significant fund reductions and economic challenges.
Given concerns about a likely high degree of financial illiteracy in South Africa, benefit counselling, currently mandated by law when investors enter, transfer, or exit retirement schemes, should also be provided when members access their savings pots. This would reduce the risk of financial insecurity at retirement by ensuring that all members are well-informed about the potential long-term impacts of early withdrawals.
BASELINE VIEW:
Should offshore funds be repatriated to accommodate retirement withdrawals, this would add to the case for a more constructive outlook for the ZAR. Even so, the amount of money at risk of leaving retirement fund portfolios is likely to constitute between 0.5% and 1.3% of total retirement assets in South Africa, and so the impact on the industry and on GDP should money be diverted to consumption will be minimal.
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