A recent survey on South Africans’ financial wellness revealed many people have no retirement plan and are struggling to save enough for their retirement.
The survey paints a bleak picture pertaining to the older generation, revealing a paltry 7% of retirees feel “well-prepared”, and less than half of those older than 65 have a retirement plan.
According to the Direct Selling Association (DSA) of South Africa, with the occurrence of longer life expectancies, rising healthcare costs, inflation and a tough economy, many retirement savings fall short. The association indicated that due to financial insecurity, a staggering 45% of people older than 60 continue working, and 30% rely on secondary income streams to cover financial gaps.
The younger generation is faced with the same crisis: saving for retirement and having no retirement plan in place.
The ailing South African economy is blamed for the crisis, as many people depend on a single income and the breadwinners are responsible to provide for additional unemployed family members.
“Relying solely on retirement savings is not enough to survive in a constantly changing economy. To achieve financial security, it is important to diversify your income sources. We know many are looking for ways to supplement their retirement savings, but do not know where to find safe and reliable income opportunities within their control,” said Rajesh Parshotam, chairperson of the DSA.
Evidence of South Africans facing a crisis of financial insecurity is within the large number of people who have applied to withdraw funds from the new two-pot retirement system, amidst experts warning they risk significant tax penalties and being pushed into a higher tax bracket, further reducing their retirement savings.
The two-pot system became effective on 1 September and divides retirement contributions into two distinct components: a “Retirement Pot” and an “Access Pot.” Each has a specific purpose and access rules designed to offer both long-term savings and financial flexibility in times of need.
Enoch Godongwana, finance minister, explained the reason for the South African government introducing the two-pot system was to strike a balance between preserving contributions to safeguard a better retirement for members, while addressing the plight of the people accessing some of their retirement funds to help ease their financial burdens in times of distress.
