Using the Two-pot System. Two wrongs don’t make a right

Here at GTC the initial pent-up demand for Two-pot savings withdrawals is now sorted with all but the exceptional cases having been accommodated.  We accompanied every withdrawal application with a detailed counselling engagement and it was enlightening as to the reasons and motivations that members had for these withdrawals.

In our pursuit of establishing GTC’s Net Promoter Score from affected members (and GTC is proud of an overall score of 97%), we gleaned some useful information from the numerous responses we received.  A relatively common trend was of members noting how easy the process had been, with them looking forward to repeating this same process next year, as they undertook this exercise for pre-determined expenses.

These expenses were often noted as being school related, with other similar conventional family expenses.

As a professional financial advisory practice, we at GTC are concerned about this trending attitude towards using retirement savings for day-to-day routine expenses.  In our counselling engagements it was a common realisation that whilst members were seeking to access their retirement savings (through the euphemistically named ‘savings pot’), they very often had not interrogated their own monthly budgeting.  Preferring to use their retirement funds for (say) school fees, DSTV premium subscriptions (prevailing at R929 p/m), cappuccino and fast-food provisions (let’s not call it budgeting), and various other relatively luxury expenses, were seldom considered to be preferred alternative sources of revenue for these same school fees.  In other words, many members were seeing the premature use of their retirement funds as being preferable (and easier) than the pain and discipline of revising an unnecessarily expensive or lax monthly budget.

There are undoubtedly lots of genuine examples of emergency funding that do justify prematurely raiding the retirement piggy bank (such as unforeseen medical costs, or the loss of a breadwinner), but it is never prudent financial planning that overrides the investment principals of compound interest and time in favour of short-term expenses that could be met from some other source.  For many, Two-pot has provided too easy an opportunity to avoid disciplined financial budgeting.

GTC’s counselling process did work.  Many members changed their planning once they had a better understanding of the consequences of compromising long-term financial principals and the less impactful ramifications of changing prevailing lifestyle conveniences.  Even where genuine circumstances existed justifying and motivating a Two-pot withdrawal, members were more knowledgeable about the consequences, and had the opportunity to establish mechanisms that would alleviate the necessity to undertake this process repeatedly.

Two-pot is here to stay.  Overall, it has worked in that popular user opinion (driven largely by the unions) now endorses preservation of a large part of one’s retirement fund, with Two-pot being the negotiating concession, allowing this to be promulgated.  It is no longer the only alternative to resign from employment to gain access to retirement funding.  Two wrongs however don’t make a right.  It is incumbent on every single retirement fund member to understand fundamental investment principles and undertake the perquisite discipline and pain of long-term investing.  Understanding and establishing emergency funding is neither easy nor quick.   Each retirement fund member’s financial destiny is in their own hands.  This responsibility can never be deflected.