By addressing both the urgent need for financial liquidity and the essential goal of preserving retirement savings, the two-pot system is poised to guarantee a brighter future for employed South African youth. According to Old Mutual's analysis, the new system, launching on September 1, 2024, could enable workers starting at age 25 to amass retirement savings two to three times greater than those under the old system.
The ingenuity of the two-pot system lies in its ability to acknowledge the need for immediate financial access, reflecting our socio-economic reality, while still safeguarding long-term retirement goals. This marks a momentous shift in conventional thinking which we believe will have a significantly positive effect on retirement outcomes in the future.
My research indicates that the two-pot system could enable young South Africans entering the workforce to save up to 9.5 times their annual salary by retirement, even if they use the entire savings component for emergencies. If no emergency withdrawals are made, savings could reach around 14.5 times the annual salary, ensuring greater financial security in retirement.
Currently, typical members of provident or pension funds save only 2.7 times their annual salary, which undermines post-employment financial stability. Experts recommend saving 1015 times one's annual salary to replace 70%75% of working income in retirement, highlighting a significant shortfall in current savings practices.
The two-pot system promises significant progress towards financial security for all employees in occupational funds. However, employers play a key role in promoting financial education and creating innovative, less expensive forms of liquidity in a crisis. It is important to emphasise that withdrawals from the savings pot should be avoided.
