To be, or not to be – that is the question. In one of Shakespeare’s most famous scenes, Hamlet bemoans the pain and unfairness of life while acknowledging that the alternative might be worse. Next year South Africans may be faced with a less morbid, but equally important question: To withdraw or not to withdraw?
On 11 August National Treasury issued a media statement in which they confirmed that, by earliest next year, members of retirement funds may be able to withdraw money from their retirement funds in order to ease some of the burdens brought about by the pandemic.
While on the surface this may seem like a much-needed lifeline, it could end up having dire, unintended consequences. When given the opportunity consumers should carefully weigh their options.
Currently the only way you can access your retirement benefits is by ending your employment (through resignation, retirement or death). Since the start of the pandemic we have seen an increase in people leaving their jobs so they can access their retirement funds. This is, at best, a short-term solution. People who’ve taken this drastic step often end up losing their retirement benefits and struggling to find employment again.
This has led National Treasury to consider allowing people early access to their retirement benefits while still employed.
This is still in the discussion stage, and members of retirement funds cannot yet access their benefits. There is a lot that still needs to be discussed and if the proposals do go through, legislation and fund rules will need to be updated. In all likelihood we will only see a full proposal in October this year, with legislative amendments coming sometime in 2022.
What should you consider before making this decision?
Before deciding to access to your retirement funds there are a few things to consider:
- What resulted in me thinking about accessing my fund? If you have large amounts of debt which you can no longer afford due to a loss of salary, have you considered alternatives? Debt counselling is a great way of finding a way to renegotiate this debt.
- Have I looked at my budget? There may be items that you are able to cut to help you manage your way back to a better position without having to access your retirement benefits.
- What is the impact on my financial plan? Have you considered the implications on your long-term financial plan? What plans can you put in place to ensure that you are able to get back on track?
- Have you considered your behavior? Research has shown that consumers who enter into debt reconciliation, or access funds to settle debt, often end up in a similar situation relatively quickly. It is not enough to simply settle debt – you need to examine what got you in the position in the first place and plan on how to avoid a similar situation in the future.
- What is the tax position? You will more than likely have to pay tax on the withdrawal, so it is imperative that you understand the tax implications clearly.
The bottom line
Choosing to access your retirement funds is a decision that should not be taken lightly. If the law does change and you are considering making a withdrawal, I would strongly recommend contacting an FPI professional member to help you navigate the decision. To look for a member in your area, visit www.letsplan.co.za
David Kop CFP®
HOD Policy and Engagement, FPI