Two-Pot or Not Two-Pot

NMG Benefits
9 July 2024
4 min read

As life expectancy rises and the quality of life improves, South Africans face the pressing need to ensure financial security post-retirement. The Two-Pot System is designed to improve retirement outcomes by ensuring long-term savings are preserved while providing access to funds for short-term needs.

The Reality of Retirement Readiness
As we now live longer, it’s essential for employees to plan as if they’re going to live to 100. Insights gathered from our extensive experience in the industry indicate that maintaining your lifestyle after retirement requires significant financial preparation. Experts suggest having at least 15 times your annual salary as a safe cushion to ensure a comfortable retirement. Even among those who have formally planned for retirement, there is a prevailing lack of confidence in their ability to support themselves long-term, particularly in light of inflationary pressures and the current economic climate.

Overcoming the Temptation to Withdraw
As part of the Two-Pot System, members will be able to withdraw cash from their savings pot once every tax year (called a Savings Withdrawal Benefit). And while having access to a portion of retirement savings is helpful in emergencies, it’s important that employees aren’t tempted to treat their retirement funds as a transactional account. But even if they do, NMG Benefits believes the new system could still benefit members in the long run as it will prevent them from having to take out expensive short-term loans. And, at the same time, being forced to preserve two-thirds of their funds over the long-term (and not cashing in when they change employers) will improve retirement outcomes. This approach encourages better financial planning and promotes long-term financial stability.

Empowering Members with Knowledge
This is the biggest change that the industry has seen in decades, so NMG Benefits believes that the Two-Pot System requires proactive member education and personalised guidance. Especially because fund members will be in the driving seat for all Savings Withdrawal Benefit decisions, as well as the movement of funds between pots. Therefore, members need to understand the core changes to the system, a simple way to interact with their pots to see how much money is in there, and the ability to make an informed decision about what to do with it. They also need to be guided through the withdrawal process so they know whether they qualify for the withdrawal and what to expect next.

Before making the decision to withdraw, it's crucial for members to be well-informed or consult with an expert who specialises in retirement planning. This ensures that they will have the correct amount of money saved when they retire and that their resources will be handled in a safe and predictable way.

Innovating Financial Education with SmartAlec
NMG Benefits has been using WhatsApp to educate members about financial literacy for the last 3 years. Our financial education chatbot, called NMG SmartAlec, helps members understand over 100 important financial concepts that are needed to make informed financial decisions. It is available in 4 South African languages, and uses a wide range of local stories and gamification techniques to drive engagement and progress through the content. Our clients appreciate the measurability of impact, and the ability to empower staff working in remote locations as the digital learning experience only requires a small amount of data and a WhatsApp application.

Our Two-Pot Innovations Put Members in the Driver Seat
Using our experience with SmartAlec over the past 3 years, we have built a personalised, guided experience over WhatsApp to support members with their Savings Withdrawal Benefit decision and enable them to initiate the transaction digitally and in real-time.

It includes multi-factor ID verification, structured education using bite-size explanations and examples, the ability to see their pot balances, an opportunity to check whether they would qualify for the withdrawal given all the rules and deductions, as well as a guided withdrawal experience where their expectations are managed regarding timelines, fees, taxes, and long-term implications.

Better Outcomes for All
Our goal is to empower members and increase their satisfaction while relieving the burden on HR personnel and administrators who will be managing an influx of queries, confusion, concerns, and complaints. By providing a streamlined and user-friendly channel, HR and administrators can focus on more strategic tasks, knowing that members have the tools and knowledge they need to make informed decisions about their retirement savings.

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968


chevron-right linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram