Is the two-pot retirement system an immediate relief or a long-term financial risk?

The introduction of South Africa’s Two-Pot Retirement System has been a game-changer for individuals facing financial strain, offering them a lifeline by allowing access to a portion of their retirement savings for immediate needs.

Already, R112,649,414.80 million has been disbursed by Akani administered pension funds which have gone to address pressing financial demands in countless households. This new flexibility introduced by the government, while undoubtedly beneficial for many, raises concerns about its impact on personal retirement security and the broader economy that cannot be ignored.

The Two-Pot Retirement System came into effect on 1 September 2024 although it has been in the pipeline for years. Fund administrators such Akani Retirement Fund Administrators (RFA) had to ensure that efficient systems are put in place in order for members to access the funds speedily.

A fate that was easily executed as fund payments began two weeks after the system came into effect and Akani RFA continues to prove efficiency and liquidity by making further payments as per incoming claims.

The administrator is interacting with members of the different funds it administrates regularly and providing pertinent information through accessible staff that provide the in-contact communication that is necessary to make financial decisions. 

The Two-Pot Retirement System has been overwhelmingly welcomed by many South Africans who find themselves grappling with the rising cost of living and limited access to affordable credit. The design of the system allows individuals to access part of their retirement savings (a maximum of R30 000 which is subject to tax)  for urgent needs while safeguarding the remainder for future use.

The manner in which it is set up aims to help people manage immediate financial obligations while preserving their retirement security. Preserving long term savings in the form of retirement funds is imperative in this country as South Africa is considered one of the countries with the lowest savings rate.

Facilitating access to Two-Pot should not however supersede the importance of saving and investing and as Akani RFA we cannot stress enough that the accessed funds should be strategic to avoid financial hardship later in life. 

A prime example of the effective use of the Two-Pot Retirement System is using the accessible funds to pay off existing high-interest debt. South Africans are battling with debt and currently statistics reveals that 53% of the workforce spends 40% of their take home to pay debts.

A choice to spend the funds on paying off debts would not only alleviate monthly financial pressure but could also significantly reduce the long-term cost of debt, offering immediate relief and setting up better financial stability for the future.

For those facing urgent expenses, such as home repairs, medical costs, or educational fees, these funds can address immediate concerns that, if ignored, might escalate into more significant problems. These cases are prime examples of how the Two-Pot Retirement System can serve as a practical and meaningful tool for many South Africans in need of a short-term financial solution.

But while the benefits of accessing these funds are clear, the economic implications are more complex. As individuals withdraw from their retirement savings/pension funds (which play a critical role in the South African economy by investing in infrastructure projects) businesses and government bonds will ultimately see a reduction in their capital base.

This could affect the long-term growth potential of these funds and potentially limit their capacity to support national economic development. Moreover, the ongoing depletion of retirement savings could lead to increased dependency on readily available funds which is something that is not only unrealistic but also unsustainable for our struggling economy.

Additionally, as fund administrators, Akani RFA understands the concerns about the inflationary effects of Two-Pots that have been raised. With increased access to cash, there could be a rise in consumer demand, leading to price increases in essential goods and services.

This has not happened yet however the current surge could inadvertently affect the very people seeking relief through the Two-Pot Retirement System, as inflation could quickly erode the purchasing power of the money they’ve withdrawn. In the worst-case scenario, a cycle of inflation could emerge, where rising prices force more individuals to dip into their savings which would in turn fuel further inflation.

The real challenge lies in balancing immediate financial needs with long-term stability, and this is where financial guidance becomes crucial. Akani RFA as a leading administrator, remains committed to assisting individuals as they navigate this system, providing advice on how best to use accessed funds while preserving long-term security. Seeking professional advice can help individuals make informed choices about spending, saving, and investing these funds which will assist them to avoid financial pitfalls and make the most of this opportunity. By partnering with experienced advisors, people can gain insights on responsible spending and even explore options for generating new income streams, such as small business investments or educational opportunities, which can yield long-term value.

For individuals facing tough financial decisions, the Two-Pot Retirement System should not be seen solely as a quick-fix tool but rather as a bridge to lasting financial security. By seeking professional advice and considering the broader impact of their choices, people can use these funds strategically to benefit both their immediate needs and their future well-being. 

Ultimately, the Two-Pot Retirement System offers immediate relief to many struggling South Africans but with it comes a responsibility that should not be overlooked. That is balancing present needs with long-term security requires a thoughtful approach, and seeking financial guidance can make all the difference. While the system has the potential to improve lives, its impact on the economy and future financial stability calls for careful consideration.

With strategic use and financial education and effective guidance, the Two-Pot Retirement System can be a powerful tool that supports both present and future needs, empowering individuals to secure their well-being for years to come.

** Zamani Letjane is the Chairman of Akani Group. 

** The views expressed herein are not necessarily those of IOL/Independent Media.