South Africans expected to withdraw up to R100bn from two-pot retirement system

South Africa’s largely consumer-driven economy is likely to get a financial stimulus from two-pot withdrawals, as the new pension system takes effect from September. However, it all depends on how much is withdrawn.

Big banks, asset managers and economists are expecting withdrawals from the ‘savings pot’ of pensions totalling between R50 billion and R100 billion in the first year, which many agree could provide another tonic to economic growth.

This is in addition to expected decreases in interest rates, optimism around the economy growing faster on the back of the establishment of the government of national unity (GNU), and Eskom finally getting a handle on load shedding.

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Depending on how efficiently the withdrawal process is handled, it is not just the South African Revenue Service (Sars) that’s going to cash in from two-pot withdrawals.

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Economists expect consumer spending to jump in the last quarter of 2024, as South Africans making withdrawals are likely to spend more at retail stores, on travel and even big-ticket purchases like cars and deposits on new homes, and hopefully also paying down debt they may have.

Speaking at a media roundtable event on Wednesday, Absa Corporate and Investment Banking’s senior economist Miyelani Maluleke said the bank is forecasting R44 billion in early withdrawals linked to the two-pot system from September to the end of this year, and another R34 billion by August 2025 (marking the first full year of the new pension system).

This totals R78 billion in the first year.

Maluleke expects the taxman (Sars) to get between R8 billion and R10 billion in taxes from the estimated R44 billion in withdrawals in the first four months of the new system (September to December 2024).

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He said the big question is, “What consumers are going to do with that money?”

Maluleke noted that while some money withdrawn could go towards paying off debt, he expects the withdrawals to “kick-off spending in the fourth quarter of the year”.

Two-pot uncertainty

However, he also cautioned in Absa’s latest ‘South Africa Q3 24 Quarterly Perspectives’ note that “there is a high degree of uncertainty around the question of how much of this will be withdrawn and the consequent effect on consumer spending”.

Maluleke said the lift in spending could be modest for two reasons.

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“The R44 billion will be subject to tax at workers’ marginal personal income tax rate, leaving only around R36 billion by our estimate … And, given clear signs of debt distress in some households, some withdrawals could flow into lowering debt commitments.”

Meanwhile, Standard Bank Group-owned asset manager Stanlib has a more conservative two-pot-related withdrawals forecast of around R50 billion in the first year. But it still expects the withdrawals to stimulate the SA economy.

“The implementation of the two-pot system will provide some additional economic stimulus, with the magnitude depending on uptake of the available funds and how they are used,” Stanlib senior economist Ndivhuho Netshitenzhe said in a note.

“There are different estimates of the amount that could be withdrawn, ranging from R20 billion to R100 billion over 2024-25. We are assuming a relatively conservative withdrawal of R50 billion, which would equate to a R40 billion after-tax boost to consumers’ disposable income [assuming an average marginal tax rate of 20%],” he added.

“While some surveys seem to suggest that up to 50% of the money withdrawn will go to paying down debt, we argue that a large portion will simply be used for general consumption,” said Netshitenzhe

“Consumers, especially middle-income earners [the most likely to withdraw from their savings pot], have faced some headwinds recently that have left them short of discretionary income …,” he noted.

“Amid these pressures, government is giving access to long-term savings – effectively implementing a government-induced stimulus.

“It is therefore likely that consumers will use these additional funds for discretionary spending rather than reducing debt or building buffers against higher costs of medical aid, education.

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“Positively, this means that the additional disposable income will boost consumption towards the end of this year and in 2025,” said Netshitenzhe.

“It is important to note, however, that the increase in household consumption expenditure is likely to be import-intensive, limiting the upside benefit to overall GDP. We calculate that GDP is likely to increase by an additional 0.2 percentage points in 2024 and 0.2 percentage points in 2025,” he noted.

This article was republished from Moneyweb. Read the original here