South Africans are increasingly tapping into their retirement savings early, risking financial insecurity in their later years, warns Old Mutual.
The country’s revised two-part retirement system, introduced in September 2023, permits limited pre-retirement withdrawals, but experts say it’s being misused, with dire long-term consequences.
According to Old Mutual’s head of financial education, John Manyike, and reports from TimesLive there has been a sharp rise in withdrawals from the savings portion of retirement funds. Data from the South African Revenue Service (SARS) reveals that over R57 billion has already been withdrawn, with nearly 500,000 repeat withdrawals recorded.
Manyike noted that those most likely to access their retirement savings prematurely earn between R5,000 and R10,000 monthly, typically aged 36 to 40. Higher-income individuals, he said, are less inclined to make withdrawals.
The primary reasons cited in an Old Mutual survey include:
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45% – Paying off debt
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18% – Covering school fees
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11% – Settling home loans
However, Manyike emphasised that the system was not designed for debt relief. ‘People don’t understand the damage they’re doing. Early withdrawals erode savings, leaving retirees with far less than they need,’ he said.
A looming financial disaster
Retirement funds are meant to replace at least 70% of a person’s final salary to maintain living standards. But with current trends, Manyike warned that some retirees may receive even less than government grants.
Compounding the problem is rising life expectancy, meaning savings must stretch further. Additionally, many retirees still carry debts, from home loans to children’s education, further straining their finances.
‘If you don’t save enough, you’ll downgrade your quality of life,’ Manyike cautioned.
Another critical concern is South Africa’s youth unemployment rate of 46.1%. Manyike warned that late entry into the job market makes it harder for young people to save adequately, increasing future reliance on state support.
To curb the crisis, Manyike called for better financial education, urging employers to facilitate retirement planning workshops for employees. ‘People need to grasp the compounding effect of early withdrawals,’ he said.
While tax penalties have discouraged some from repeat withdrawals, others remain undeterred, prioritizing immediate cash over long-term security. Without intervention, South Africa could face a surge in impoverished retirees, placing further strain on social systems.
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