Withdrawals from savings in the two-pot retirement system

EMPLOYERS, WARN YOUR EMPLOYEES!

THEY ARE IMPOVERISHING THEIR FUTURE SELVES

Dear employer

Within 24 hours of the effective date of the new two-pot pension law, SARS processed almost 2,500 tax withdrawal directives, while some fund administrators battled with system crashes as members flooded them with withdrawal requests.

Of those, SARS had already processed 2,424 tax directives by the next morning, requesting R103-million worth of withdrawals from retirement funds and delivering R6.7-million of tax to the fiscus.

NEASA implores employers to educate their employees on the incredibly destructive effect the government has achieved by virtue of this new law, disguised as “a new saving grace to access funds”, that are “non-credit” in nature, for whichever purpose, without proper consideration.

A withdrawal from your retirement savings robs you of the full benefit of compound interest. It will also reduce the amount you will have available at retirement to purchase a retirement income product or take a lump sum. You will also lose the favourable tax benefit of taking a cash lump sum benefit on retirement.

Unfortunately, government gave in to pressure from trade unions to provide members with access to retirement funds earlier than the legal retirement age (55); this while SA has a negative savings rate.

We therefore foresee that the so-called 6% of our society who will eventually be able to retire independently (the rest will depend on children or SASSA pension), will now be even less. It is also doubtful that people will use these withdrawals for actual debt repayments – most are using this as a quick-fix for instant gratification of their needs and desires. Headlines such as “Spur rubbing their hands” are very disconcerting.    

According to South African financial data, people increasingly earn less pension due to insufficient capital, inflation and taxes, causing further poverty. This concession does not at all encourage healthy saving habits or preparation for financial survival during retirement, when one no longer has an active income.

People should consider any withdrawal from this retirement savings component only in exceptionally dire circumstances and as an absolute last resort.

We call on employers to warn their employees to not let their non-essential desires of today, rob them from that which they will desperately need in the future.

For more information

NEASA Media Department

media@neasa.co.za