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Dr Cecile Duvenhage
Dr Cecile Duvenhage is a lecturer in Personal Finance and Microeconomics, Department of Economics and Finance, University of the Free State (UFS), and the Editor and Co-Author: Personal Finance (Van Schaik Publishers).

Opinion article by Dr Cecile Duvenhage, Lecturer: Personal Finance and Microeconomics, Department of Economics and Finance, University of the Free State, Editor and Co-Author: Personal Finance (Van Schaik Publishers).


On 29 July 2022, the National Treasury released the 2022 Draft Revenue Laws Amendment Bill for public comment until 29 August 2022 to introduce the “two-pot” system for retirement savings that was flagged in the National Budget. The Revenue Laws Amendment Act was the first law approved by Parliament in 2023 and signed into law, giving effect to the new system and setting the implementation date. The Pension Funds Amendment Bill was approved by Parliament in May 2024. It introduces changes to the Pension Funds Act and includes funds not regulated by the Pension Funds Act in the new system. President Cyril Ramaphosa officially signed the Pension Funds Amendment Bill into law on July 21, 2024

The two-pot retirement system in South Africa (to be implemented on 1 September 2024) divides retirement savings into two distinct components: 1) the savings and 2) the retirement pot:

1) Savings Pot: About one-third of the contributions go into this pot that is designed for short-term financial goals and emergencies. Members will be able to access a portion of these savings before retirement if necessary, and can withdraw from it once a year (minimum withdrawal amount of R2 000) under specific conditions. 

However, according to the Citizen (22 July 2024) 30% of pension fund members in the Old Mutual Stable fund will have less than R2 000 in their savings pot and will not be able to claim. Informal sector workers often lack coverage, and traditional family-based care for the elderly is breaking down as urbanisation increases. Therefore, this system seems to benefit the middle-income group and (again) fail the poorest of the poor.

Keep in mind that access to the savings pot’s money has implications on both the tax that the individual pays and legal requirements during divorce proceedings. More specifically:

• Withdrawals are subject to taxation at the individual’s marginal tax rate
• Retirement fund administrators must be notified when divorce proceedings are initiated to ensure that no payments are made from the savings pot during the legal process. This ensures that the division of assets is handled correctly according to the legal requirements.

2) Retirement Pot: The retirement component ensures that the bulk of retirement savings – two-thirds – remain untouched until retirement age as stipulated by the fund. This preservation is crucial for securing long-term financial stability post-career. These funds are strictly preserved until retirement age, ensuring long-term financial security. Upon retirement, members can access these funds as a regular income stream, like a pension annuity.

Is it wise to take a portion of your pension?

There are also two sides to the Pension Funds Amendment Bill. Individuals and Financial Companies welcome this new law, as it allows the Financial Sector Conduct Authority (FSCA) to start approving rule amendments – submitted by various funds before 31 July 2024 – once gazetted.

Discovery was the fund to react the quickest with its proposed amendment rules. Some of the other retirement funds and administrators still have a substantial amount of work to do before they will be able to pay claims, including ensuring administration readiness and integration with SARS. SARS anticipates a R5 billion revenue windfall from taxing two-pot retirement system withdrawals in the next financial year. Thus, the government expects many hundreds of thousands of South Africans to access the savings component of their retirement funds as soon as the two-pot retirement system goes live.

Making use of the government’s lifeline – to protect the dignity of those in need and overcome financial stress – can be understood given the economic constraints facing individuals such as high unemployment, excessive debt, and inflation.

However, a wiser approach by the government should be to address the consequences and not the causes of citizens’ financial dignity. Given that less than 6% of individuals in South Africa can retire “without worries”, individuals should also have a good understanding that this “lifeline” is no quick fix for financial stress.

Hidden costs and other implications

Members of South African pension funds may generally access their pension pot from the age of 55. If you withdraw before the age of 55, there will be tax implications. This means that the withdrawal will be taxed similarly to your salary or other income. Any withdrawal is included in your gross income for the year, potentially pushing you into a higher tax bracket.

There will also be hidden costs in the form of penalties as stipulated by the member’s fund. The Institute of Retirement Funds Southern Africa has indicated an administration fee ranging from R300 to R600 on each withdrawal.

South Africa has a progressive tax system, where tax rates increase as taxable income rises. It is designed to be fairer by imposing a lower tax rate on low-income earners and a higher rate on those with higher incomes. Therefore, the amount that a member will get out depends on his/her marginal rate. Should a member be paying 45% tax on his/her taxable income (when earning more than R512 801 per year), a member might end up only getting slightly more than half of the withdrawal amount – once your tax-free benefit at retirement is exhausted.

Some further long-term benefits can be jeopardised when a member withdraws from the retirement savings. These are:

1) Tax-Free Benefit at Retirement: Keep in mind that withdrawals may reduce the tax-free benefit you enjoy at retirement. Up to R550 000 of the lump sum you take in cash at retirement may be tax-free, but this benefit can be eroded if you frequently withdraw from your savings pot before retirement.

2) Lost Tax-Free Growth: Additionally, withdrawing from your savings pot means losing out on tax-free growth. Savings in your retirement fund grow free of tax on interest income, dividends, and capital gains.

Apart from the tax implications, some pension providers will charge fees for withdrawals. Therefore, it is advisable to check with your pension administrator to understand any costs involved. In addition, withdrawing from your savings pot will reduce the remaining balance.

Early withdrawals can significantly affect your retirement savings. Every R1 withdrawn at age 35 could equate to as much as R30 less at retirement 30 years later.

“Two pots” may spoil the broth

Statistics from the Nedfin Health Monitor (2023) reveal that 90% of South Africans have inadequate savings for retirement, and a significant 67% of people in the country have no retirement savings beyond what they are putting into their employer-provided pension funds – which is often too little to be able to retire comfortably. The general rule of thumb is that individuals start saving as soon as possible, as much as possible, for as long as possible.

There is a saying that “too many cooks spoil the broth”. My personal view is that individuals need to be careful that “two pots” do not spoil the broth.

Although the system aims to balance immediate financial needs with long-term security, there is simply no way that individuals can eat their cake and have it. If the two-pot system is regarded as a bailing-out system, worry-free retirement remains a challenge for many. There is still a lot of thought needed for the two-pot system. Policymakers should consult the pension systems of the Netherlands, Iceland, Denmark, and Israel – which are regarded as having the best pension systems globally – to get an understanding of how adequacy, sustainability, and integrity are prioritised.

News Archive

Eye tracker device a first in Africa
2013-07-31

 

 31 July 2013

Keeping an eye on empowerment

"If we can see what you see, we can think what you think."

Eye-tracking used to be one of those fabulous science-fiction inventions, along with Superman-like bionic ability. Could you really use the movement of your eyes to read people's minds? Or drive your car? Or transfix your enemy with a laser-beam?

Well, actually, yes, you can (apart, perhaps, from the laser beam… ). An eye tracker is not something from science fiction; it actually exists, and is widely used around the world for a number of purposes.

Simply put, an eye tracker is a device for measuring eye positions and eye movement. Its most obvious use is in marketing, to find out what people are looking at (when they see an advertisement, for instance, or when they are wandering along a supermarket aisle). The eye tracker measures where people look first, what attracts their attention, and what they look at the longest. It is used extensively in developed countries to predict consumer behaviour, based on what – literally – catches the eye.

On a more serious level, psychologists, therapists and educators can also use this device for a number of applications, such as analysis and education. And – most excitingly – eye tracking can be used by disabled people to use a computer and thereby operate a number of devices and machines. Impaired or disabled people can use eye tracking to get a whole new lease on life.

In South Africa and other developing countries, however, eye tracking is not widely used. Even though off-the-shelf webcams and open-source software can be obtained extremely cheaply, they are complex to use and the quality cannot be guaranteed. Specialist high-quality eye-tracking devices have to be imported, and they are extremely expensive – or rather – they used to be. Not anymore.

The Department of Computer Science and Informatics (CSI) at the University of the Free State has succeeded in developing a high-quality eye tracker at a fraction of the cost of the imported devices. Along with the hardware, the department has also developed specialised software for a number of applications. These would be useful for graphic designers, marketers, analysts, cognitive psychologists, language specialists, ophthalmologists, radiographers, occupational and speech therapists, and people with disabilities. In the not-too-distant future, even fleet owners and drivers would be able to use this technology.

"The research team at CSI has many years of eye-tracking experience," says team leader Prof Pieter Blignaut, "both with the technical aspect as well as the practical aspect. We also provide a multi-dimensional service to clients that includes the equipment, training and support. We even provide feedback to users.

"We have a basic desktop model available that can be used for research, and can be adapted so that people can interact with a computer. It will be possible in future to design a device that would be able to operate a wheelchair. We are working on a model incorporated into a pair of glasses which will provide gaze analysis for people in their natural surroundings, for instance when driving a vehicle.

"Up till now, the imported models have been too expensive," he continues. "But with our system, the technology is now within reach for anyone who needs it. This could lead to economic expansion and job creation."

The University of the Free State is the first manufacturer of eye-tracking devices in Africa, and Blignaut hopes that the project will contribute to nation-building and empowerment.

"The biggest advantage is that we now have a local manufacturer providing a quality product with local training and support."

In an eye-tracking device, a tiny infra-red light shines on the eye and causes a reflection which is picked up by a high-resolution camera. Every eye movement causes a change in the reflection, which is then mapped. Infra-red light is not harmful to the eye and is not even noticed. Eye movement is then completely natural.

Based on eye movements, a researcher can study cognitive patterns, driver behaviour, attention spans, even thinking patterns. A disabled person could use their eye-movements to interact with a computer, with future technology (still in development) that would enable that computer to control a wheelchair or operate machinery.

The UFS recently initiated the foundation of an eye-tracking interest group for South Africa (ETSA) and sponsor a biennial-eye tracking conference. Their website can be found at www.eyetrackingsa.co.za.

“Eye tracking is an amazing tool for empowerment and development in Africa, “ says Blignaut, “but it is not used as much as it should be, because it is seen as too expensive. We are trying to bring this technology within the reach of anyone and everyone who needs it.”

Issued by: Lacea Loader
Director: Strategic Communication

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