By: Brett Ladouce
The year 2024 started with excitement and fear regarding the implementation of the Two-Pot System. The uncertainty as to the readiness of the retirement fund industry, regulators, and Sars (South African Revenue Services) to meet the September 1, 2024 deadline led to speculation and unsubstantiated gossip about the downfall of the retirement industry as we knew it. Some fund members went as far as considering withdrawing from their funds before September 1, 2024, to “stop the government from stealing their retirement money”.
And here we are, in the last days of 2024, and things went much better than expected. The retirement industry did not collapse, and fund members did not have to take to the streets to receive their Savings Pot withdrawals in a reasonable time.
Sars reported that they have received tax directives in the region of about R35 billion, meaning that at least R5-7 billion generated from Savings Pot withdrawals went into the government coffers since September 1, 2024. The “good news” is that, if the Savings Pot withdrawals are measured against the total assets of retirement funds, members on average only withdrew R1 of every R100 that is in their retirement funds and left the other R99 to grow until they retire. The negative effects of the withdrawals will therefore, in the long run, not be as significant as we initially might have thought, as long as these withdrawals do not become an annual institution.
After this year of expectation, uncertainty, and “reward”, we need to take the last days of this year to relax, re-educate ourselves in relation to our retirement benefits and re-commit ourselves to our chosen retirement funding plan.
Re-Lax
A clear and focused retirement plan is the product of a clear mind. After a long year, you deserve to take some time off to recharge your batteries. Switch off your cell phone and e-mail for business calls and messages and concentrate on getting yourself in good mental shape for 2025. The quality of the decisions you make in 2025 will be determined by the rest you have at the end of 2024.
Re-Educate
A few days away from work might be the right time for you to re-educate yourself in regard to your retirement fund and your retirement plan. If you do not have a retirement plan, this might be the right time to structure one in your mind or, preferably on a piece of paper:
- What are my retirement goals?
- When do I intend to retire?
- What is the lifestyle that I want to maintain in retirement?
- How much money do I need to accumulate for retirement?
- What is the most suitable investment strategy to reach my retirement funding goals?
Your education journey should start with an understanding of the rules of your retirement fund and the benefits that your fund offers. It will also be to your benefit to read books and articles that are focused on retirement fund issues. As a columnist of Personal Finance, I can offer you my subjective opinion that the Personal Finance retirement-related articles available on its website, is a good place to start your retirement education journey.
Re-Commit
Education without action is as pointless as practicing how to hit the perfect golf shot without the intention of ever stepping onto a golf course. It makes no sense to learn more about your retirement fund if you do not intend to use that knowledge to take the necessary actions that will lead to better retirement outcomes.
The first step will be to recommit yourself to your retirement plan. The purpose of the plan is to give you a roadmap of how to go about reaching your retirement goals and what to do when the road ahead becomes difficult.
The second step will be to align your retirement funding model (how much money you save towards retirement and how that money is invested in your retirement fund) with your retirement plan. This might entail increasing your contributions towards your retirement fund given the fact that you will now have the option (temptation?) to withdraw money from your Savings Pot if and when an emergency might present itself in future. If you are therefore not contributing 27.5% (limited to R350 000) of your taxable income per year towards your retirement fund, you should seriously consider increasing your fund contributions.
You should also review your investment strategy to ensure that the assets that your fund is invested in align with your retirement investment goals. Fund default investment options are good safety nets, but those investment options are not built with your specific goals and needs in mind. It is therefore important to review the available investment options and to choose the ones that are most aligned to your personal retirement plan.
When in doubt, ask for help. Your retirement fund has an obligation to provide fund-related information in the form of a retirement benefit counselling service to you. The assistance of a competent financial advisor must also not be taken for granted.
* The second edition of the book, Pensions for Palookas, is now available at R350 per copy plus delivery fee. Please order your copy from [email protected]. The first five readers of Personal Finance who order the book will only be charged the R100 delivery fee.
* * Ladouce is a pension funds lawyer and the author of the book, Pensions for Palookas.
PERSONAL FINANCE