Global Courant
Sanlam says South Africans have mixed feelings about the introduction of the new ‘two pot’ pension system planned for the country.
The new pension system allows people to access a small portion of their pension funds, while leaving a large portion for retirement.
A piggy bank allows one-third of contributions to be paid, which members can access before retirement. The purpose of the piggy bank is to help people who need access to emergency funding – as was the case during the Covid-19 pandemic.
A second pension pot requires a minimum allocation of two-thirds, accessible only upon retirement.
In addition to the two-pot system, there will also be an ‘acquired pot’, which will contain accrued pension savings prior to the introduction of the two-pot system and will be subject to the current rules of a particular fund.
Sanlam said the pension industry had come to grips with introducing compulsory retention until the normal retirement age before the planned changes were implemented.
National Treasury expects the necessary legislation for the new changes to come into effect on March 1, 2024. However, many industry associations are concerned that there won’t be enough time for funds to change their systems before then.
Sanlam said it does not expect any further delays in the legislation as 2024 is an election year. While the group said it was ready for the changes, it has expressed some concerns about the new legislation.
For example, Sanlam said that benefit funds, annuities, divorces, retrenchments and various other tax implications are still undefined. In addition, withdrawals from the piggy bank can take place once a year, but it is not specified how the year is calculated.
The biggest question, however, is whether on 1 March 2024 part of the current pension savings of participants will be transferred to the piggy bank as a form of ‘seeding’.
While seeding into the piggy bank was not included in the draft regulations, Sanlam believes the lockout could lead to members resigning before it is introduced to access their full retirement savings.
It added that if seeding becomes applicable, the amount should be large enough to be of interest to policyholders, but not so large that it reduces current retirement savings.
Consumer response
According to findings from Sanlam’s 42nd Benchmark Report, 57% of respondents were skeptical of the new Two-Pot system, with many wary of the long-term effects on their retirement savings.
21% of respondents said they would consider drawing emergency funds in case of an emergency, and 13% said they would be willing to use some of their benefit outside of that.
Only 8% of respondents said they would use the new system.
Sanlam said it was interesting that only 23% of respondents said they wouldn’t touch their savings at all.
Retirement warning
However, Sanlam expressed concern about the general saving culture in the country and warned that by 2040 South Africa will face the reality of a large population that simply cannot retire.
According to Benchmark research, 75% of respondents contribute to pension funds and 25% do not.
“These statistics are not entirely surprising given that 46% of respondents admitted to struggling to meet basic monthly needs such as food and rent,” said Kanyisa Mkhize, CEO of Sanlam Commercial.
The company said more education and awareness campaigns are needed to close the gap, noting that 30% of individuals did not know how to save, 47% were unsure of which retirement product to invest in and 48% defaulted on contributions for medical assistance in their financial planning.
40% of respondents said if they forgo their retirement fund it would be because their current financial needs are too great and they need money now.
However, Sanlam said the Two-Pot system should address this concern by striking a balance between needing long-term savings goals and providing access for emergencies.
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