Two-pot withdrawal frenzy in South Africa
Old Mutual has paid over 200,000 claims totalling R2.3 billion since the launch of the Two-Pot Retirement System on 1 September 2024.
The company said that the total number of claims received currently sits at 226,000 and that it receives ~3,200 claims on a daily basis.
“Our claims process has been functioning smoothly, and we are satisfied with the progress so far,” said Chief Customer Officer Michelle Acton.
“Our focus has been on managing the high volume of claims carefully while ensuring they are processed efficiently. The South African Revenue Service (SARS) has been prompt in providing tax directives, and this has enabled us to handle claims with minimal delays,” she added.
To withdraw from the two-pot retirement system, members must have at least R2,000 in their savings pot, sourced from a retirement fund, annuity, or preservation fund.
Acton said that Legacy Funds, such as some retirement annuity funds that existed before the introduction of the Two-Pot Retirement System, may be exempt from the new system.
Since its inception less than two months ago, SARS said that pension funds have approved the payout of almost R26 billion in retirement savings.
SARS has approved 95% of the 1.4 million applications.
This resulted in over R6 billion in taxes to the revenue service.
Acton advised members still considering a withdrawal to take a considered approach before accessing their retirement savings.
“There is no need to rush. The system is here to stay, so take your time to assess whether a withdrawal is the right choice for your financial circumstances,” said Acton.
“Members should also remember that any withdrawal will be taxed at their applicable marginal tax rate, and an administration fee will apply,” she added.
The tax is imposed on the withdrawal at a rate ranging from 18% – 45%, depending on their scales.
SARS Commissioner Edward Kieswetter warned that taxpayers, wilfully understating their income, are dodging their obligation to the revenue service.
“SARS is deeply concerned that 213,654 taxpayers have been identified, where they have declared incorrect taxable income, with the view to have a more favourable tax rate,” said Kieswetter.
“If a taxpayer understates their income, they are intentionally involved in evading their tax obligation. A penalty will be imposed on taxpayers who have understated income.
“Finally, I wish to caution taxpayers to refrain from this conduct that borders on criminality as there are real consequences for this behaviour,” added the Commissioner.
While Old Mutual said that it does not yet have specific data on how members are using their Two-Pot funds, the the company expects members to use their savings for debt repayment (60%), emergencies (23%), and medical expenses (4%).
Not so fast
“Old Mutual encourages members to carefully review their financial situation before tapping into their emergency savings,” said Acton.
“It’s important to speak to a financial adviser to understand the tax implications and how a withdrawal might affect long-term financial goals.”
Recently, insurer Momentum Group expressed concern over the number of older people seeking to make partial withdrawals from their pension funds before retirement.
Momentum, one of South Africa’s leading insurance companies, said it received requests to withdraw a total of R2.5 billion from 150,000 applicants by 25 September.
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