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Saving For The Future

Due to the fact that one day, in the future, you will no longer be able to generate income and may retire, there has been a long standing push for the working public to save towards retirement.

The long held wisdom is that saving while you are younger, to spend later in retirement, is the only way to try make ends meet in later life.

With people living longer than ever, and the effects of inflation eating away at the value of savings, the pressure on older ones to make ends meet has never been harder.

At the same time, millions of South Africans have overcommitted themselves to debt in order to currently live beyond their means. This has plunged most working people into serious financial crisis. Few have funds set aside for emergencies, and the idea of savings has been replaced with rather deciding which creditor to pay so you can use those same funds to go buy food.

No wonder people are desperately looking around for any funds they can get their hands on.

Money Now Not Later

So, how can people find more money right now without earning more? Enter the new 2 Pot System which allows those with pension funds, to get their hands on some of those funds they are saving towards retirement each year.

After all, it’s hard to worry about the future when you need cash right now, and most people do not feel confident about the future anyway.

So, starting in 2024 funds in your retirement plan will be divided into two virtual “pots”.

If you ignore them, then all the money will continue to grow and earn interest etc as normal, but now there is an option to get your hands on some of the funds once each year.

 

Savings Pot

1/3 of your monthly retirement contributions will be allocated to this pot

You are allowed to withdraw from it once a year

 Retirement Pot

 

2/3 of your monthly retirement contributions will be allocated to this pot

This is locked until you retire

Moving Some Funds Into The Savings Pot Now

In order to jumpstart the savings in your savings pot, a special once-off arrangement has been put in place (called “seeding capital”). This involves automatically moving 10% of your saved retirement funds across into the savings pot right away.

There is however a limit to this once-off transfer of funds. It caps out at R30 000. So right away everyone’s’ saving pot will have some funds in it (but a maximum of R30 000 for those who have already saved R300 000 or more for retirement).

From this year on, the 1/3rd of payments will be allocated into your savings pot, and should you need the money in your savings pot, you will be able to access all of those accumulating funds once a year.

If left untouched, the savings portion will grow and grow and more funds will be available to you should you want to make a withdrawal.

The 2 Pot Systems Effect on Debt Review

It is interesting to hear that many debt counselling practices that tend to service higher income consumers (like those with retirement policies) have felt a dip in the number of applications this month.

Could this be because so many of the heavily over-indebted people in the country have run to withdraw the funds they are allowed to? There are media reports of millions of Rands being drawn from such policies across the country (and they can be taxed, which SARS is happy about).

Love it or hate it, the system is now in place and will offer consumers facing an emergency another way to get their hands on some funds, should they need it.  Perhaps these funds are just what’s needed right now, to keep food on the table and inject funds into everyone’s credit cards and loans.

The good news is that for those in debt review who face an emergency (and who have a retirement fund) you will now have another option, instead of having to try leave debt review to get more credit (which of course you would not actually qualify for). You will be able to get access to these funds, which may help you successfully remain in debt review.

So, perhaps the 2 pot system is very good news for the debt review industry.