Two-pot retirement system: Claims still rolling in, billions rolling out

Claims for withdrawals from the saving pots under the two-pot retirement system are still rolling in, with Old Mutual receiving 200,000 claims to the value of R2.3 billion so far and government workers submitting 285,064 by the end of last week.

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 total number of claims the fund manager received is currently 226,000.

On a daily basis, Old Mutual receives an average of about 3 200 claims via the Old Mutual channel on WhatsApp, Michelle Acton, retirement reform executive at Old Mutual, says.

“Our claims process has been functioning smoothly and we are satisfied with the progress so far. 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.”

Acton advises 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 and you can take your time to assess whether a withdrawal is the right choice for your financial circumstances.

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Remember the tax you pay under the two-pot retirement system

“Members should also remember that any withdrawal will be taxed at their applicable marginal tax rate and an administration fee will apply.”

Members must have at least R2 000 in their savings pot sourced from a retirement fund, annuity, or preservation fund to withdraw under the two-pot retirement system. Legacy Funds, such as some retirement annuity funds that existed before the introduction of the two-pot retirement system, may be exempt.

Acton says while Old Mutual does not yet have specific data on how members are using their two-pot retirement system funds, the 2024 Old Mutual Savings and Investment Monitor provides insights into expected spending patterns, with many members planning to use their savings for debt repayment (60%), emergencies (23%) and medical expenses (4%).

“Old Mutual encourages members to carefully review their financial situation before tapping into their emergency savings. It is important to speak to a financial adviser to understand the tax implications and how a withdrawal might affect your long-term financial goals.”

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Two-pot retirement system also sparked greater engagement from fund members

Geoff Baars, group executive director at advisory firm NMG Benefits, also noted that the two-pot retirement system, designed to balance immediate financial needs with long-term retirement savings goals, has sparked unprecedented engagement among retirement fund members.

“The first month has probably seen a total of R10 billion in claims across the industry, which sets members back in their quest for adequate income in retirement, but the high degree of member engagement, the sensible use of much of the money and the effectively forced preservation of the majority of retirement savings is going to provide significant long-term advantages to all involved.”

Siphamandla Buthelezi, head of platforms at NMG Benefits, reports that heightened interest is reflected in the numbers. Within the first six weeks of the two-pot retirement system launch, NMG Benefits processed claims with an average size exceeding R20 000, four times higher than anticipated.

“This surge includes greater engagement from high-income members. Member engagement has been significant, with over 200 walk-ins per day at the NMG Benefits head office and staff being approached for advice in everyday settings like shops and on the street.

“We paid out almost three years’ worth of claims (by volume) in just six weeks, underscoring the active participation of our members in the system.”

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Substantial withdrawals during the first month

He says while the initial month saw substantial withdrawals, the two-pot retirement system’s design ensures that the majority of retirement savings remain preserved. “This forced preservation could provide significant long-term advantages, potentially improving retirement outcomes for many South Africans.”

Many members use these withdrawals strategically, Buthelezi says. Anecdotal evidence from the advisory firm reveals that some are using the funds to settle high-interest debt or cover annual expenses like school fees, potentially improving their overall financial health. “This trend indicates a shift in financial behaviour, with members becoming more proactive in managing their finances.”

However, Buthelezi says, despite extensive education efforts, misconceptions about the two-pot retirement system persist. Many members mistakenly believed they had to submit claims by the end of September 2024 or lose the opportunity to withdraw funds, while others fell prey to misinformation about expedited claims processing.

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Tax implications of withdrawals

He emphasises that it is crucial for members to understand the tax implications of withdrawals from their saving pots. While the ability to access funds provides financial flexibility, each withdrawal is subject to taxation, potentially impacting the net amount received, as well as future tax brackets, he warns.

“Given the complexities of the two-pot retirement system and its potential long-term implications, the need for professional financial advice has never been more critical. Financial advisors can help members to navigate the tax implications, assess the impact of withdrawals on their long-term savings goals and develop strategies to maximise the benefits of the new system while minimising potential drawbacks.”

As the system matures, ongoing education, technological improvements and professional financial advice will be crucial in helping South Africans navigate the change, he says. “The ultimate success of the two-pot retirement system will depend on how well it balances short-term financial needs with long-term retirement security.”

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Public servants also claiming in droves

Mack Lewele, senior manager for communications and public relations at the Government Pensions Administration Agency, says the agency received 285 064 withdrawal applications so far. He could not say what the monetary value is as the agency is still verifying the validity of each claim. The highest amount paid to date to any individual is R24 600 after tax.

Asked about complaints about a backlog of payouts with people complaining about having to wait two months for their money, Lewele says there is no backlog in “claims being paid”. 

“We announced at the beginning that we would pay within 60 days and it is now approximately day 45 according to our service level agreement with the GEPF.”