Two-pot retirement system: funds are ready, members are not

Pension funds say they are ready for this big change in the retirement landscape, but they fear that pension fund members are not, with many still not understanding how the two-pot retirement system will work.

With the two-pot retirement system designed with the primary aim of preserving consumers’ retirement funds until retirement, the main focus for members is on the pot of gold they believe is waiting for them at the end of the rainbow: their savings pot.

According to the Financial Sector Conduct Authority, where pension funds had to lodge their rule amendments for the two-pot retirement system, a total of 822 (96.33%) of expected rule amendments have been submitted. A total of 733 funds are listed as active and 89 are listed as being in the process of termination.

The FSCA says by now funds should have communicated the claim process with their members during training sessions. “However, members may engage directly with their principal officers and/or administrators or refer to the contact information on their annual benefit statement.”

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Still waiting for final piece of legislation

Michelle Acton, retirement reform executive at Old Mutual, says Old Mutual is on track to be ready for the two-pot retirement system, although the final piece of legislation, the Revenue Laws Amendment Bill (RLAB2024) is still in draft form.

She points out that members still have some misconceptions about how much they can claim and how quickly claims may be paid, while there is also some unnecessary panic around existing benefits and a lot of confusion around members who are older than 55.

“We have had over 200 000 members reach out to our two-pot retirement system menu on WhatsApp enquiring about how much they can claim and how much tax they will pay.”

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Withdrawal process can only start on 2 September

Saqib Hossain, senior manager for technical marketing at FundsAtWork at Momentum Corporate, says Momentum is fully prepared and confident in its ability to meet the upcoming demands. He points out that although the go-live date is 1 September, the withdrawal process can only start from 2 September and this process can take several days to process the request and pay the claims.

“If the rules of a retirement fund were updated to enable the two-pot retirement system and approved by the FSCA by 1 September 2024 (a Sunday), the retirement fund can update its administration systems from Monday, 2 September.”

He says fund administrators will do the “seeding” calculations and transfer 10% (to a maximum of R30 000) of each member’s existing retirement savings on 31 August 2024 into the savings component.

“In terms of the Revenue Laws Amendment Act – the law enabling the two-pot retirement system – the seed capital can be allocated on or after 1 September 2024 provided the calculations are based on the value on 31 August 2024. Only once the administration systems are updated and the seeding calculation done will members have a balance in their savings pot to withdraw.”

Hossain says it is important to note that the balance in the savings component must be R2 000 or more before a withdrawal can be made. Tax will be deducted from the withdrawal amount and administration costs could be applied. Qualifying fund members must submit an application form to their retirement funds before they can withdraw from their savings component. Claims can only be submitted after 1 September.

However, he warns that this will not be an automatic process and retirement fund members will not receive an automatic deposit into their bank accounts. “The fact that the money is available for withdrawal in the savings pot does not mean it will automatically be paid out. Members are encouraged to protect their savings pot for retirement.”

Like other fund managers, Momentum had numerous queries about the two-pot retirement system. Does that mean people are desperate to lay their hands on their savings pot? Hossain says this is not just about wanting extra cash.

“It is a sign of how hard it is for people to make ends meet today. Accessing their savings may be a necessary step to cover essential expenses, underscoring the difficult trade-offs people are making to support themselves and their families in this challenging economic environment. “

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Worry about walk-ins and administration offices full of people

Natasha Huggett-Henchie, principal consultant at advisory firm, NMG Benefits, says NMG is also ready. “We are doing final testing and refinement on details. A key uncertainty that all administrators face is the number of ‘walk-ins’ to expect. We can gear up for electronic and telephonic interface but if administrator offices are flooded with people that come to claim it can cause chaos.”

She says members need better communication on what they need to be able to claim. “It also does not help having high profile people going on national TV and further spreading disinformation due to lack of understanding.”

Huggett-Henchie says they had too many queries to count. “We are really excited that this is the first time that we are seeing members really engaging with their retirement benefits and their pension funds. We would like to see it continue into the future, for all the right reasons.”

She also says the demand is extremely high. “I think far higher than we thought initially. A sad reflection on the state of the economy. Members really need some relief to clear their debts or get a step up in life.”

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Members only focused on savings pot, showing desperation

Johan Prinsloo, head of retirement fund administration services at Sanlam Corporate, also confirms that Sanlam is ready to implement the two-pot retirement system on 1 September, although he also notes that pension fund members do not yet know enough about the system, as their primary understanding seems to focus on the emergency savings pot withdrawal.

Sanlam had about 2 000 queries a month over the last two months. “We understand that there is generally a high level of financial distress amongst members, so we believe this equates to higher levels of desperation.”

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Caution about significant claim volumes

Vickie Lange, head of best practice at Alexforbes, says Alexforbes has done extensive planning and preparation. “Since 1 September 2024 falls on a Sunday and 2 September is a Monday, we will use the Monday to perform the relevant seeding calculations based on individuals’ accumulated balances.

“We will validate these calculations to ensure that the balances are correctly displayed and set up in our systems. From Tuesday, 3 September 2024, we anticipate being able to start receiving and processing savings pot withdrawal claims.”

She says members will be able to view their retirement fund balances in the new pots and begin their savings pot claim submissions on the member portal, AFConnect. “There are still many unknowns with operating under the new two-pot system, including the potential for significant claim volumes resulting from savings pot and seed capital allocations.”

Lange also notes that financial stress, such as managing debt, affects many members, making it likely that they will want to access their savings pot.