Why we need the Two-Pot Retirement System:
The intention of the Two-Pot legislation is to enforce a level of retirement savings preservation; and thereby ensure that retirement savings are retained for the purposes of retirement, even when someone leaves an employer. Members who are dire straits often resign from their employer to access their retirement savings. This two-pot intervention is desperately needed, with only a small portion of members currently preserving retirement savings, typically resulting in a replacement ratio in retirement which falls far short of the 70% generally required (the replacement ratio is the income goal after retirement as a percentage of the member's pre-retirement gross (before tax) earnings.
The Two-Pot regime endeavours to address this issue, but also recognises that many households require occasional access to savings to cater for emergencies and unforeseen circumstances.
The aim of the Two-Pot system is to balance the opposing forces of long-term retirement saving with short term financial distress, in a manner that optimises outcomes for Retirement Fund members. It does so by creating 3 “pots” – a ‘vested pot’ cater for retirement savings accumulated prior to the implementation date of retirement contributions, a ‘savings pot’ which members can access prior to retirement, and a ‘retirement pot’, which must be preserved until retirement and cannot be accessed as a cash withdrawal at all before or at retirement. These pots will be known as "components".
The Two-Pot system is estimated to result in a new member accumulating more than double the value of their savings at retirement compared to the current system, while providing them with access to some savings annually.
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Source: Stanlib, edited by Anton Schutte: Recruitment Manager, Wealth and Risk Planner and Certified Financial Planner CFP®: PWG Group