In the new Two-Pot system tax rules governing retirement fund members' access to their savings component clearly favour delaying withdrawals until after retirement.
The Two-Pot system provides a long-sought social relief mechanism for people in real crises to access emergency funds. At the same time, Two-Pot tax rules have been designed to ensure that employees who wait until retirement to access their savings will be significantly better off than those who don't.
This is especially so for higher earners who can access other means of financial support in times of crisis. While a minimum tax rate of 18% applies to all withdrawals under Two-Pot, high income earners withdrawing their retirement savings will be taxed at their current income rates. Furthermore, withdrawals from their retirement savings will push their effective tax rates up. So, making early withdrawals can be a much more costly strategy, depending on your income.
A final consideration here is crucial for those who owe the tax man - the South African Revenue Service (SARS) will deduct any money that is owed to them by an individual from any savings component withdrawals they make. In extreme cases, one could end up making a withdrawal and getting no money out.
On the other hand, funding financial emergencies with short-term credit - which usually comes with favourable interest rates for high-income earners in good standing - can be less costly in the long term when you consider the compound interest effect you'd lose if you withdraw from your savings component. Even better, if you don't withdraw that money, it will be taxed according to the retirement tax tables at retirement (with the first R550 000 tax free), not income tax.
The large tax-free benefit at retirement coupled with the fact that any additional contributions made will only be taxed decades later incentivises additional contributions. These will only be taxed in retirement as you draw an income after many years of earning interest.
Remember that Two-Pot is not a "use-it-or-lose-it system'. There are in fact no incentives to withdraw. But the opposite is true. Those who contribute more and leave their contributions for longer stand to gain from the larger principal available, higher interest and investment returns accrued from that larger principal. And finally, you'd benefit from the significant tax benefit gained by only withdrawing at retirement.