Two-pot retirement system: Billions paid out, but some get R0 after tax

A month after the two-pot retirement system was implemented on 1 September, billions of rands have been paid out. However, in some cases, people who claimed did not receive a cent, because their total withdrawals went to the taxman.

If someone applied for a withdrawal under the two-pot retirement system and the fund requested a tax directive from Sars, the tax authority can take the withdrawal to cover the amount that the person still owed.

Discovery’s Corporate and Employee Benefits team says 22% of the total eligible retirement fund member base opted to make a withdrawal during September under the two-pot retirement system. People in the age group between 35 and 45 made up the highest total number of withdrawals from their accumulated retirement savings (27% of those eligible).

“This figure emphasises the pressure South Africa’s ‘sandwich generation’ faces. They battle to support young children while they are potentially also responsible for their older parents. This is worsened by the recent high-inflation cycle, increased debt and electricity costs and other cost-of-living pressures which have devastated household finances, especially for families,” Guy Chennells, chief commercial officer at Discovery Corporate and Employee Benefits, says.

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Two-pot retirement system withdrawals determined by income

The withdrawals range from over 40% for middle-aged people with a low- to medium-income to less than 1% for people older than 55 who also have very high income of over R1 million per year. A low income is up to R125 000 per year, while a medium income is between R125 000 and R500 000 per year.

“By age alone, withdrawal rates were similar for the young and middle-aged (around 25%), but about half of that for the over 55 group (13%). Income was a much stronger driver of withdrawal rates with low-income claimants at 38%, middle-income at 29%, high income at 12% and very high-income claimants at just 4%.”

However, Chennells cautions that withdrawal rates during September should be understood within the context that many people did not qualify for a withdrawal for two key reasons:

• They had less than R2 000 in their saving pots from the seeding; or
• They were older than 55 and did not physically opt in to the two-pot retirement system for their seeding to occur.

By age, 45% of members younger than 35 qualified in September, 71% of between 35 and 55 and 61% of members older than 55 were eligible. For those over 55, a further 20% would have enough savings to qualify if they opted in, which they can do until September 2025.

ALSO READ: Two-pot retirement system: Thousands of claims, but some decide against it

Most of low-income group could not withdraw

Only 34% of people earning less than R125 000 were eligible to withdraw. “As this is the group with the highest claiming rate, withdrawals overall would have been much higher without the R2 000 minimum requirement. It also means that withdrawals are expected to increase by the end of the year as savings components grow with contributions and investment returns.”

Chennells says 67% of the middle-income group could withdraw from their saving pots, while 83% of the high-income group and 90% of the very high-income group qualified.

“So far, withdrawals under the two-pot retirement system were lower than our team expected and we hope that some of this is due to people changing their minds about dipping into their retirement savings.

“Understanding other options for short term capital, or how much more you will have to contribute to your fund later if you withdraw, or how much you will lose to tax, has proved critical in helping people make the right decisions.”

He says there might be another spike in withdrawals in November for Black Friday, possibly another at Christmas and a third early next year, as the new school year starts.

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Billions paid out but Sars takes its share

Anneke Hanekom, head of reputation management and group CEO projects at Momentum, says so far the company received 147 226 withdrawal claims with a monetary value of R2.5 billion, with R326 million paid to Sars.

The biggest amount paid to a single individual was R30 000, which included the tax paid to Sars. The smallest amount paid out to an individual was R2 000, the minimum amount that pension fund members can claim.

Sanlam received 81 473 claims for a monetary value of R1 567 billion. The average amount claimed was R19 238 and 74 420 tax requests were submitted to Sars, with 1 610 rejected and 7 896 Sars IT88 requests, which means that people who claimed owed Sars money already.

There were 971 claims that were not paid out at all because the whole amount went to Sars for taxes in arrears. The average for these claims was R17 842. Sanlam claimants had total tax arrears of R34.3 million.

Sanlam processed 79 967 electronic transfer payments to the value of R980 million after tax so far, with a gross value of R1 351 billion. The biggest amount paid to a single individual was R30 043 before fees and taxes and the smallest amount R2 005 before fees and taxes.

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Alexforbes pays out R3.4 billion and NMG Benefits R378 million

Vickie Lange, head for best practice at Alexforbes, says three weeks after the introduction of the two-pot retirement system, the company received more than 185 000 claims, valued at more than R3.4 billion. More than 58% of these claims have been paid out so far.

Siphamandla Buthelezi, head of platforms at NMG Benefits, says the company received close to 19 000 claims and processed 12 237 successfully so far. “This means that in the first two weeks and a half of the two-pot retirement system, NMG processed more claims than our annual claims in volume.”

About 10 000 of the 19 000 claims were from members who visited one of the NMG offices to submit a withdrawal. So far, the total amount requested is R378 million, resulting in an average of R19 800 per claim.

NMG already paid 1 100 claims totalling R11 million, with R3.6 million in personal income tax paid to Sars. “We expect to double the number of payments by the end of next week now that our system is more stable and all processes have been thoroughly ironed out. The claims amount paid out so far is in line with what we expected.”

The company had no rejected claims but does have pending claims due to missing requirements such as incorrect bank accounts, tax numbers and other static data.

ALSO READ: Two-pot retirement system: Two weeks and already a few billion rands later

Old Mutual pays out R1.9 million

Michelle Acton, retirement reform executive at Old Mutual, says the company received 145 000 withdrawal claims by 26 September, with a total value of R1.9 million. Old Mutual only started accepting claims on 18 September when phase 2 started because it adopted a phased approach to help ensure the system could handle the expected 600 000 withdrawal applications.

Phase 1 enabled customers to check their personal details and savings balances via the Old Mutual channel on WhatsApp. It also gave them the time and opportunity to get their tax affairs in order before submitting a withdrawal application, Acton says.