In South Africa, legislation known as the Two Pot Retirement system is being hurried through parliament by the government. This system would allow members of retirement funds to access up to one-third of their retirement values.
According to says Magnus Heystek, director and investment strategist at Brenthurst Wealth, there's growing concern among asset managers that such a law could trigger a significant capital outflow from funds, impacting the local stock market.
Ian Williamson, CEO of Old Mutual, South Africa's largest pension fund manager, cautioned earlier this week that the systems are ill-prepared to handle the anticipated massive withdrawals.
Consequently, the Johannesburg Stock Exchange (JSE) may suffer as shares and bonds are liquidated to meet payouts amounting to hundreds of billions of rands.
Furthermore, the introduction of this system could further dampen the JSE's performance, which has already been among the weakest over the past five years or more.
The retirement aspirations of many investors have been shattered due to stagnant stock markets and declining residential property values across much of the country.
Heystek said that most retirees fail to grasp the actual returns on their invested funds, often only observing nominal increases in their portfolio values driven by ongoing contributions.
Yet, in real terms—factoring in inflation and costs—many retirement funds in South Africa have experienced minimal growth, particularly over the past decade.
For individuals nearing retirement age, this translates into a significant shortfall in their expected retirement savings and, consequently, a diminished income.
Compounding the issue are stagnant residential property prices in many regions, exacerbated by deteriorating infrastructure and municipal corruption.
The convergence of these factors paints a bleak picture for retirees, with plans of seaside retirement and leisurely international travel now seemingly out of reach.
Additionally, forced early retirement and longer life expectancies exacerbate the financial strain, the fund manager said.
Despite these challenges, many retirees mistakenly believe that a 30-year contribution to a retirement plan is sufficient to sustain them for another two to three decades post-retirement—an unrealistic assumption.
Consequently, retirees often seek high-yield investments, only to face disappointment when such schemes fail, as seen with examples like Sharemax, Picvest, and more recently, Ecsponent.
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