Partial pension withdrawal has advantages and risks
II am definitely in favour of it but with checks and balances so that members aren’t reckless.
f you are employed and contributing to a retirement or provident fund, you might want to read this. National Treasury, after constant demands by labour unions and many interested parties for members to be able to withdraw a certain portion of their retirement fund while still working, has finally relented.
The two-pot system, as it is dubbed, or the 2022 Draft Revenue Laws Amendment
Bill works like this: a member may be able to withdraw one third of his/her pension fund every year while the other two thirds is preserved until retirement.
It is not clear at this point whether the ability to withdraw the one third will be unlimited or not.
The bill is currently open for public comment until August 29, and it is tentatively planned to come into effect on March 1 2023.
I know many civil servants, in particular, have been forced to resign because they were impossibly in debt and wanted early access to their pension fundsto either square off debts or send their children to university.
Others did it because they wanted access to their money for foolish reasons, and because they could.
Others wanted access to the funds because they moved jobs and wanted to enjoy their pension savings while they could.
Like any new thing, there are advantages and disadvantages and also unintended consequences.
What are the advantages of this proposed move?
The obvious one – the heavily indebted member may be able to pay off their debts and start afresh.
The member may be able to send their children to university or use the money to do renovations to their house, and so on.
Disadvantages might be that the member might withdraw every year for frivolous reasons and end up having much less to retire on.
Remember, we now live much longer, so if there is little saved up, there will be a lot less to live on in retirement.
These members will end up being dependent on their children or the state just to survive.
The yearly withdrawal allowance might just be too tempting to resist.
The hidden disadvantage is the withdrawal will be added to your yearly income, which will attract a higher tax. The money you might think you will get, because of the added tax might be much less than you expected.
Basically, the withdrawal might be tantamount to you throwing money away.
Do the disadvantages outweigh the potential benefits?
What value can you put on an employee who is much happier and less stressed because they are now relatively debt free?
What is the value to the employer of an employee who can now see the fruits of their labour instead of waiting until they are old to be able to do the things they have always wanted?
While this proposed move comes with many disadvantages, I believe these are dwarfed by the advantages.
The unions and civil society must do workshops between now and next March to teach people to be financially literate.
If that is done properly, I only see good things coming from this.
The economy certainly needs more money pumped into it and it might just be the impetus it needs to bounce back to life.
I am definitely in favour of it, but with checks and balances so that members aren’t reckless.