Although the new two-pot retirement system may assist South Africans in the short-term, it could leave them in trouble when they reach retirement.
Old Mutual warns that the new two-pot retirement system, which will become operational next year, could negatively impact the entire purpose of retirement funds.
A more standard “retirement pot” will receive at least two-thirds of the contributions made after 1 March 2024, which will only be accessible at retirement. Keith Peter, Advice Manager at Old Mutual Personal Finance, said that the new system has potential drawbacks, despite its appeal. Her contributions scale by 6% annually, with salary increases, and the projected growth before retirement is 8%.
“With this example, it’s clear that we must base our withdrawal strategy on the customer’s needs. A good rule of thumb is to exercise withdrawals from the savings pot in emergencies only, where the individual is in dire financial stress, such as the inability to pay home loans or vehicle finance,” he said.
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