Business
96% of South Africans Withdraw Retirement Savings Despite Two-Pot Risks
The introduction of the Two-Pot retirement system on 1 September 2024 has triggered significant activity among retirement fund members. Alexforbes, a leading financial services group, reports that members have withdrawn a staggering R6.5 billion pre-tax from their retirement savings, despite being fully aware of the potential consequences on their long-term finances and tax obligations.
What Is the Two-Pot System?
The system divides retirement savings into three distinct “pots”:
- Savings Pot: Holds one-third of new contributions, accessible before retirement.
- Retirement Pot: Holds two-thirds of new contributions, only accessible upon retirement.
- Vested Pot: Retains savings accrued before 31 August 2024 under existing legislation.
Withdrawal Insights
Since the system’s inception, Alexforbes has processed claims from 350,000 members, representing 32% of its membership base. Key highlights:
- Total Claims Pre-Tax: R6.5 billion
- Average Claim Size: R19,000
- Total Claims Paid After Tax: R4.6 billion
- Processing Volume: Two months’ claims equal two years of normal volume
- Processing Efficiency: 99% of claims processed within 20 business days
Member Survey Results
A survey among members who withdrew funds revealed the following:
- Satisfaction: 86% satisfied with their withdrawal decision
- Awareness:
- 96% understood the tax implications
- 96% knew the impact on long-term retirement outcomes
- Usage of Funds:
- 50% to offset debt
- 30% for essential living expenses
- 13% for major household purchases
- Future Plans:
- 63% plan to withdraw again
- 37% do not intend to withdraw again
Economic Impact
Alexforbes forecasts marginal growth in GDP due to Two-Pot spending, with inflationary effects expected to be negligible. However, better tax receipts could significantly improve South Africa’s debt-to-GDP ratio, with projected gains of up to 2.3% in the 2025/2026 tax year.
Member Engagement
The new system requires members to actively preserve their retirement pots when changing employers. Alexforbes anticipates this increased engagement will improve preservation rates across vested and savings pots.
Financial Performance
Alexforbes released its financial results for the six months ending 30 September 2024, reflecting strong growth:
| Financials | 2023 | 2024 | % Change |
|---|---|---|---|
| Operating Income (R’000) | 1,911 | 2,140 | +12% |
| Profit for the Period (R’000) | 339 | 367 | +8% |
| Basic Earnings per Share (cents) | 27.0 | 28.7 | +6% |
| Headline Earnings per Share (cents) | 27.0 | 28.7 | +6% |
| Interim Dividend per Share (cents) | 20 | 22 | +10% |
CEO Commentary
Alexforbes CEO Dawie de Villiers expressed pride in the group’s performance, highlighting its ability to adapt and grow amidst challenges. “Our results reflect economic tailwinds, member engagement, and market appreciation. We are confident about the positive outlook ahead,” he stated.
The Two-Pot system’s early adoption showcases its potential to drive economic benefits while emphasizing the importance of long-term financial planning for South Africans.
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