Two-pot pension system: What it means for crypto

The Two-Pot Retirement System will divide members’ benefits into two separate pots: a savings pot and a retirement pot, with South Africans now able to withdraw money from the savings pot component of their pension savings. One third of future monthly retirement contributions will go into a savings pot, accessible once every tax year, and two thirds will go into an investment pot, which will only be accessible upon retirement. It became effective in South Africa on 1 September 2024. 

Could this have an impact on the market?

This a potentially huge influx of capital into the economy. A comparable influx of capital into a nation’s retail sector was stim cheques in the US during COVID, which fueled a “significant but modest” bump in bitcoin trading volume and price”, according to a study from the Federal Reserve’s Cleveland branch. Will the same happen this time in South Africa? How could that impact the markets? 

Should people withdraw from their RA?

Generally speaking, history has taught us that it is not a good idea. Each time you access a savings withdrawal benefit, the amount available to provide you with an income in retirement will be reduced. In addition, that savings withdrawal benefit will be taxed and has the potential to push you into a higher tax bracket, depending on your income and the value of the withdrawal. It should only really be done when really necessary.

Why would people want to withdraw from their pension pots?

There are many reasons why people would want to withdraw from their pension pot, from personal spending needs to a desire to make alternative long-term investments. People may look to have more personal control over their investments and explore different risk profiles when it comes to their assets. Crypto is still largely considered a risk-on asset that’s more volatile and may offer something different for investors looking to diversify their portfolio.

What should I think about if I do want to withdraw from my RA?

There are a number of considerations if you are thinking of withdrawing from your RA. First, as noted, make sure you’ve considered the many consequences – unintended or otherwise. If you can, consult your financial advisor. There are also many reliable education sources online, though you need to be sceptical of any sources that appear to be promoting a service. Second, if you’re going to invest that money in any asset – whether it’s crypto or otherwise – make sure you do it with a regulated and licensed Financial Services Provider. Do your research and never invest more than you can afford to lose – whether it’s now or in the future.

*Investing in cryptocurrency may result in the loss of capital. This information should not be construed as a solicitation to trade. All opinions, news, research, analysis, prices or other information is provided as general market commentary for information purposes only and is not investment advice or recommendation. Luno always advises you to obtain your own independent financial advice before investing or trading in cryptocurrency.