Over 270 000 two-pot savings claims worth R2.5 billion paid out by Alexforbes since March
Alexforbes has paid out over R2.5 billion in two-pot savings claims this tax year, with most members using the funds for debt repayments and essential living costs.
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Over 270 000 two-pot savings claims worth R2.5 billion have already been paid out by Alexforbes since the start of the current tax year with most members using the funds for debt repayments or living costs.
Alexforbes said in a statement that this comes after more than 650 000 savings pot claims worth R9.5 billion were processed last year.
Vickie Lange: Head of Corporate Best Practice at Alexforbes said a high rate of repeat withdrawals has emerged - 70% of members who accessed their savings pots this tax year had also withdrawn last year.
In addition, the Alexforbes member survey showed that 80% of withdrawals were used to reduce debt or cover essential living costs.
Lange said consumers should take note that:
- Withdrawals reduce both retirement income and cash at retirement.
- Withdrawals are taxable and may push members into a higher bracket.
- Savings pots should be preserved for genuine emergencies.
- Members can boost their retirement savings through higher or voluntary contributions.
- Preserving the vested pot until retirement protects long-term benefits.
- Financial advice is strongly recommended before making decisions about retirement savings.
John Manyike, Head of Financial Education at Old Mutual, cautions against treating the two-pot system as a savings account.
“You may think ‘Oh, I’ve got R20 000 I can withdraw. Why don’t I use it to buy a new lounge suite or treat myself to a weekend at a luxury spa?’ However you would choose to spend that money, the wise decision would be to leave it where it is,” Manyike said.
He added that people should be mindful of the tax of between 18% and 45% that will be deducted from your withdrawal amount, depending on your income.
However if left in the fund, the money will continue to grow adding to savings.
“You may think R20 000 isn’t a lot – it won’t make a difference to your savings in the end. But you underestimate the impact of compounding. Left to grow in your fund at 10% a year, for example, over a career of 30 years, that ‘measly’ R20 000 would boost your retirement savings by almost R400 000.”