SmartAboutMoney writes that one of the objectives of the new two-pot retirement system is to allow members of a pension or provident fund to access a portion of their retirement savings in times of financial distress without resigning from their jobs.

While providing this access presents a short-term cash-flow solution, members need to understand the tax implications, as well as the long-term impact of such withdrawals on their savings at retirement and the income those savings would provide. Withdrawals from the savings component within a member’s retirement fund will be added to taxable income and taxed at that person’s marginal tax rate. Being taxed at the tax bracket rates is very different from how cash lump sums are taxed at retirement and the implications should be considered before any withdrawals are made. A table in the full SmartAboutMoney reports shows the tax payable with and without the withdrawal and it is considerable. Members also need to consider the opportunity cost of withdrawing funds from their retirement savings, and the younger they are, the greater the loss of potential market returns on the amount withdrawn. Before making withdrawals from retirement funds, members are encouraged to seek the help of a financial planner or financial coach to work through monthly cash flows and possibly develop a new budget or debt management plan.

• Read the full original of the report in the above regard by Lana Visser at Fin24

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