Capitec joins the chorus of warnings for South Africa

Capitec CEO Gerrie Fourie has expressed concerns over the two-pot retirement system, believing it will hurt long-term retirement savings.

The two-pot retirement system went live on 1 September 2024, substantially changing retirement outcomes in South Africa.

The new system introduced a new “savings pot,” which holds one-third of retirement savings from implementation, accessible before retirement.

The second “retirement pot” will hold two-thirds of savings from implementation and only be accessible after retirement.

A third “vested” pot will hold all the retirement savings before the two pot’s implementation date, minus R30,000 used as seed capital in the “savings pot,” and will follow prior legislation.

The system has already resulted in billions of outflows from retirement savings.

Momentum saw R2.5 billion leave retirement savings in the first 25 days from the system’s implementation, while Alexforbes saw over R1 billion in the first week.

By 12 September, the South African Revenue Service (SARS) said it had received 161,607 tax directive applications related to the new two-pot retirement system, amounting to R4.1 billion.

Chantal Marx, Head of Investment Research at FNB Wealth and Investments, previously said that the two-pot system could benefit retailers and banks.

“The introduction of the two-pot system, together with possible interest rate cuts, decent momentum in wages, and lower inflation, could boost consumer confidence and drive an increase in spending in the months ahead,” said Marx.

“This is expected to be positive for domestic retailers, particularly discretionary names (clothing and furniture mainly).”

“There could also be some benefit accruing to the banks, as savers may utilise their withdrawals to pay down debt, which could improve asset quality and free up capital to drive higher quality loan origination as well as higher transaction activity.”

Capitec was widely expected to benefit from the new system, as it has large amounts of unsecured debt.

However, when speaking with BusinessTech, Fourie said it is far too early to see if the system has resulted in any meaningful change at the bank.

Moreover, Fourie noted that the new system would hurt retirement outcomes in the long run, adding that retirement fund members should not withdraw from their savings.

Familiar warning

Fourie’s comments join a long list of warnings from financial services providers.

“Taking money out of your retirement savings can slow down the growth of compound returns,” said Ester Ochse, Product Head at FNB Integrated Advice, before the implementation.

“Even if it feels like it’s only a small withdrawal for now, it could make a big difference to the amount that you can fully access when you retire.”

“So, it’s best to only take money out if it’s an emergency and you have no other options. It’s also critical to consult a qualified financial advisor who can quantify the impact of withdrawing your retirement savings.”

The dangers of dipping into the savings pot, could drastically reduce one’s retirement income.

For example, a 45-year-old with a current who has a current retirement value of R500,000, contributing R1,000 per month (which increases at 5%) and has a retirement age of 65 will lose R409,000 if they frequently dip into their savings:

Other financial institutions, including Nedbank, Allan Gray, and Coronation, have warned their clients similarly.

That said, although the system is expected to see roughly R40 billion leave pension assets, this is less than what is typically lost in early access every year.

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