R4.5 billion two-pot retirement surge in South Africa

Listed insurance and financial services group Momentum says it has processed over 260,000 wo-pot retirement withdrawal applications, totalling R4.5 billion.

Reporting its interim results for the six months through December 2024, the group recorded an excellent performance, with headline earnings surging 55%.

The group’s headline earnings per share improved by 55% from 157.4 cents to 243.6 cents, and earnings per share increased by 55% from 157.4 cents to 244.3 cents.

Operating profit increased by 33% from R2.13 billion to R2.84 billion, while return on equity improved to 24.6% from 17.4% the prior year.

Net insurance and investment results rose to R9.06 billion, up 32.36%.

Momentum’s operating profit rose by 33% to R2.84 billion, while its total comprehensive income for the period grew to R3.47 billion.

The company’s investment return more than doubled to R595 million.

The strong performance was driven by a combination of internal operation improvements and positive market conditions for the group.

This includes the group’s diversified portfolio of businesses and management interventions to introduce new businesses.

It also saw positive contributions from a significantly improved underwriting result in its insurance businesses, profit released from annuities in the investment business and improved profitability in corporate.

The cherry on the top for Momentum came through a favourable external investment and underwriting environment.

The group did record operating costs that were higher than inflation, however it said that these mostly related to spending on IT infrastructure to support the two-pot retirement withdrawals.

It processed over 260,000 two-pot claims, totalling R4.5 billion.

In addition to added IT costs to process the flood of claims, the group also noted the withdrawals’ impact on sales.

It said that life annuity sales were likely hit by the backlog in retirement claims processing created by the surge in claims.

Another two-pot retirement flood incoming

Momentum noted that Metropolitan Life’s value of new business premiums increased by 2% to R3.3 billion, largely attributable to an increase in long-term savings new business volumes.

The introduction of the two-pot retirement system and the launch of new products to meet this requirement aided in these new business volumes.

However, this was partially offset by lower protection and life annuity new business volumes.

“Metropolitan Life saw a shift away from life annuity products due to lower interest rates. We believe sales were further impacted by the backlog in retirement claims processing created by two-pot withdrawal claims,” it said.

According to other insurers, two-pot withdrawals far exceeded initial expectations and are set to continue to do so in 2025.

Alexforbes noted earlier in March that there has already been a survey of new withdrawals in the new tax year, having received over 68,000 savings pot withdrawal claims over just 14 days.

“Our research shows that individuals who claimed in the previous tax year had a high likelihood of claiming again in the new tax year,” it said.

The withdrawals have been a particular boon for the South African Revenue Service (SARS).

SARS initially projected only R5 billion in revenue from the system but has already collected R11.6 billion.

Financial advisors have urged South African to avoid withdrawing from their retirement funds if they can, as it results in extra taxes being paid and compromises long-term retirement plans.