In this challenging environment, the two-pot retirement system, which allows partial access to retirement savings, has emerged as a potential lifeline. However, experts warn of its long-term implications.
Speaking to Channel Africa's Thami Ngubeni, Lerato Thwane, Head of E-Commerce at XDS, emphasised the importance of balancing immediate financial relief with future security. While the two-pot system provides a financial cushion for emergencies, it risks depleting retirement savings if not used judiciously.
“The discipline of saving for the future has been disrupted,” Thwane explained. “While accessing retirement funds can address immediate needs, it creates a dependency that may leave individuals with insufficient savings for retirement.”
She highlighted the need for careful consideration when deciding to withdraw savings, urging individuals to use these funds as a last resort.
For many, the two-pot system has been a way to address urgent financial gaps, such as medical emergencies or family obligations.
Thwane noted that withdrawing savings could prevent individuals from incurring high-interest debt. However, she cautioned that dipping into long-term savings should be accompanied by plans to replenish those funds.
“The danger lies in solving immediate problems with long-term resources,” Thwane said.
“People often see this as an opportunity to clear debt or start afresh when changing jobs, but catching up on retirement savings later can be incredibly difficult.”
SA’s low savings rates compound the issue. Many workers already save insufficiently for retirement, and gaps in employment or late starts to saving worsen the situation. Thwane pointed out that this trend forces retirees to either continue working or rely on family for financial support.
Data-driven insights from credit bureaus like XDS can help individuals and businesses manage these risks more effectively. Thwane stressed the importance of financial education, encouraging South Africans to use retirement funds wisely and avoid increasing debt dependency.
As the festive season approaches, Thwane offered a key takeaway: “Accessing retirement savings can provide relief, but it’s crucial not to leave yourself financially worse off in the future.”
--ChannelAfrica--
