96% of South Africans know the Two-Pot system will hurt them – they withdraw anyway

Alexforbes customers have taken R6.5 billion out of their retirement savings since the introduction of the two-pot system, with 96% of those withdrawing knowing that there will be retirement and tax impacts.

Introduced on 1 September 2024, the Two-Pot system sees retirement savings placed into, as the name suggests, two pots.

The savings pot holds one-third of retirement savings from implementation and is accessible before retirement.

The retirement pot holds the remaining two-thirds and is only accessible upon retirement.

A third vested pot holds all the retirement savings up until 31 August and follows pre-existing legislation.

Since the commencement of the Two-Pot system, Alexfobres said that 350,000 members (roughly 32% of our entire membership base) have submitted claims to the value of circa R6.5 billion pre-tax.

The average claim size is roughly R19,000 pre-tax consequences.

The 340,000 claims have been paid to the value of around R4.6 billion after-tax consequences.

It added that the volume of claims processed in two months is more than two years of normal claims volume.

It added that 99% of claims have been paid within service level arrangements of 20 business days.

A survey of members who claimed from the savings pot showed the following:

• 86% are happy with their decision to withdraw.

• 96% were aware that their long-term retirement outcome would be impacted.

• 96% were aware that they would pay taxes on their withdrawal.

• 50% used their emergency savings pot claim to offset the debt.

• 30% used their emergency savings pot claim to pay for essential living expenses.

• 13% used the emergency savings pot claim to make major household purchases.

• 63% plan to claim again.

• 37% do not plan to claim again.

The group expects a marginal impact on GDO growth resulting from Two-Pot spending, ranging from 0.1% to 0.3% in 2024 and 0.2% to 0.7% in 2025.

The company expects that the inflationary impact of such spending will be negligible but that the impact on the fiscus will be more meaningful.

Better tax receipts could improve the debt-to-GDP ratio by 0.5% to 1.1% of GDP in the 2024/2025 tax year and 0.8% to 2.3% in the 2025/2026 tax year.

“An under-appreciated impact of the Two-Pot retirement system is that members will now have to make an active decision regarding the compulsory preservation of their retirement pot upon changing employers, whereas most would have previously elected to withdraw their entire fund value in cash.”

“The implication is that members will have to be more engaged with their retirement funds and their options at exit.”

“Alexforbes expects that the increase in engagement necessitated by the preservation of the retirement pot will amplify preservation levels of vested and savings pots resulting from improved access to retirement benefits counselling, digital platforms and financial advice.”

Results

The Two-Pot figures were released alongside the group’s interim financial results for the six months ended 30 September 2024.

’We are pleased to deliver another set of results that demonstrate our continued growth and ability to create value,” said Chief Executive Officer, Dawie de Villiers.

“Our total return to shareholders over the past four years is 46.9% per annum, which is due to the successful implementation of our strategy by a disciplined team despite a challenging operating environment.”

“Our results are structurally geared towards economic tailwinds, market appreciation and member engagement. I am therefore proud of our track record over this period and believe that we can benefit from positive signals across these dimensions into the future.”

Alexforbes said that operating income increased by 12% to R2,140 million due to the consolidation of acquisitions, higher average assets under management that benefitted from positive market performance, inflationary increases from within the retirements and healthcare consulting client base, higher than expected Two-Pot claims volumes and high client retention.

Operating expenses also jumped by 11% to R1,724 million and highlight the impact of operating expenses from acquisitions that have been consolidated higher personnel and technology costs, and the higher Two-Pot-related expenditures.

Profit from operations (before non-trading and capital items) jumped by 13% year on year to R447 million.

A gross interim cash dividend of 22 cents per share has been declared, which amounts to 88% of the normalised headline earnings per share. The interim dividend is thus up 10% year on year.

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