Two-pot retirement system: one week later

Thousands of pension fund members are withdrawing funds from their saving pots under the two-pot retirement system.

Some companies already paid out claims and many agree that the various stakeholders are working together well to get this mammoth task done to reform the South African pension system.

Metropolitan CEO Peter Tshiguvho says his company already made the first payouts under the two-pot retirement system thanks to the deployment of advanced digital technology to handle client queries and requests for withdrawals in a two-step process.

“Our adaptation of WhatsApp and online chatbots, familiar to many clients, now includes functionality that streamlines the process for clients, allowing them to verify their eligibility for policy withdrawals while eliminating unnecessary administrative steps.”

 The two step process begins with clients checking their eligibility for withdrawal using the chatbot. Less than 1% of Metropolitan’s retirement annuity members fall outside the two-pot system, because they are over 55 years old.

Once the eligibility compliance process is completed, members proceed to apply for withdrawal via an SMS link. Upon completion of these steps, Metropolitan’s internal robotic process automation (RPA) is activated, interfacing directly with Sars for a tax directive in just 80 minutes, Tshiguvho says.

Upon receipt of the tax return, automatic authorisation ensures clients are paid out promptly and efficiently.

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Hundreds applied on 1 September at Metropolitan

Tshiguvho says on Sunday 1 September 695 Metropolitan clients accessed the two-pot menu via the chatbot and completed the eligibility request. By 2 September, this figure increased to 8 290 and on 3 September, it exceeded 11 400.

“I am proud of the agility and collaboration our teams displayed in the months leading up to 1 September. There were long nights and early mornings to ensure our systems were ready to handle the anticipated high volume of queries. We will continue to monitor and refine our chatbot technology to ensure continued excellent service delivery to our clients,” he says.

Metropolitan clients’ Sars directives revealed that the average tax rate for withdrawals is 36%, indicating that those applying for access to their funds fall into the R40 000 per month middle income category, rather than the lower income bracket as predicted, Tshiguvho says.

“Despite the increasing financial burden on all South Africans, Metropolitan strongly advises the preservation of retirement policies wherever possible and recommends making withdrawals only after consulting with a financial advisor.

“For anyone who is considering withdrawing from their retirement policy, in addition to their digital chatbot facility, Metropolitan offers face-to-face services with financial advisors, as well as support via email or phone through call centres.”

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All stakeholders are working well together

John Anderson, executive for solutions and enablement at Alexforbes, says the first week of the two-pot retirement system was a historic milestone for South Africa’s retirement industry.

“This significant reform marks one of the largest changes ever seen in the sector and it has been a mammoth task to implement.

“The strong collaboration across all stakeholders, including retirement fund administrators, employers, advisers, Sars, the Financial Sector Conduct Authority (FSCA) and the Association for Savings and Investment South Africa (ASISA), highlighted the resilience and strength of our industry and commitment to implementing these reforms for the benefit of members.”

Anderson says despite initial challenges, Alexforbes, along with the rest of the industry, is working through an unprecedented level of claims. The initial number and value of claims far exceeded expectations, landing at the upper end of their forecasts.

“We anticipate that at this rate we can expect a positive impact of between 0.3% and 0.7% in of gross domestic product (GDP) this year as set out in recent research published by the South African Reserve Bank.”

In addition, he says, the current level of activity highlights how important retirement fund investments are in the lives of individuals and that the new system has resulted in a significant increase in engagement levels.

“However, the recent activity also highlights that we have a long way to go to educate individuals to make sound financial decisions. While there is no doubt many members who are financially stretched and need to access their savings pot for relief, there are many who are doing so simply for short-term consumption or misunderstanding that their option to withdraw is available on an ongoing basis and there is no need for rushed decisions now.”

Anderson says It is important for individuals to think carefully about their decisions, seek advice and consider the long-term impact on their retirement outcomes.

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Alexforbes received 78 000 claims so far

So far Alexforbes received 78 000 claims that are being processed, equivalent to the number of claims it was processing over a six-month period before the two-pot retirement system kicked in. The total value of claims currently being processed stands at R1.5 billion and Alexforbes estimates at least R270 million will be paid in taxes.

These claims are at various stages, including awaiting Sars directives and completing bank validations, with many payments being processed.

Anderson says Alexforbes received and processed the highest volume of claims in the industry. “We expect this level of activity to continue in the coming weeks.”

Anderson points out that pension fund members must remember that the value of the saving pots can change daily because they are invested in the markets, not held as cash.

“These fluctuations are a normal part of investing. While short-term ups and downs happen, long-term growth remains the goal. We encourage members to take a long-term view when considering the value of your savings pot.”

He says withdrawals can take up to 20 working days to process due to several factors, including Sars directives, bank validations and the extremely high volume of requests.