Laura du Preez | 26 November 2024
Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.
It has been almost three months since the two-pot retirement system was introduced, and about 50 percent of eligible fund member have made withdrawals amounting to R35 billion.
Most withdrawals have been paid out successfully despite the rushed introduction of the new system just weeks after the legislation was finalised, statistics released by industry spokespeople, the South African Revenue Service and the Financial Sector Conduct Authority (FSCA) reveal.
SARS data shows more than 2.1 million fund members applied for tax directives to enable them to make withdrawals. SARS approved 1.9 million of these.
Millions of members did not have the minimum R2 000 in their savings pots after these were kickstarted or seeded with 10 percent of their total retirement savings up to the maximum R30 000.
Some funds were also excluded as they are for unclaimed benefits, have only pensioner members or were older (legacy) retirement annuities with savings components.
Speaking at the Actuarial Society of South Africa convention last week, Joanna Combrink, consulting actuary at Willis Towers Watson, says the statistics collected by
the retirement fund industry show 50 percent of members eligible to make withdrawals have done so.
Last week the FSCA revealed that withdrawals were made largely by members with pensionable salaries of between R60 000 a year and R600 000 a year. The largest proportion of withdrawals was made by members with retirement fund balances or credits of R100 000 to R250 000.
More than 76 percent of members who withdrew were between the ages of 31 and 51, the FSCA data shows.
According to SARS’s data, 169 500 applications for withdrawals from retirement fund savings pots were declined for various reasons, including members using the wrong ID 
numbers or wrong tax numbers.
Michelle Acton, chief customer officer at Old Mutual Corporate, told the ASSA conference some retirement funds members do not have tax numbers because they do not live in South Africa, are foreign nationals or asylum seekers. However, withdrawals can only be processed if members register for tax and obtain a tax number.
In some cases, members have not been paid due to problems retirement funds or their administrators had with, for example, incorrect data.
Acton told the ASSA conference that a lot of retirement funds’ member data had become outdated because, until September, members had little contact with their funds. Addresses, phone numbers, surnames and bank accounts can all change.
Funds have now been able to update their databases, but it is important to keep your data up-to-date on an ongoing basis if you plan to make withdrawals from the savings pot and so that your fund can provide you with important information about your retirement savings.
Corlia Buitendag, the FSCA’s head of retirement funds conduct supervision, said according to feedback the FSCA received, funds are taking between three days and six weeks to pay savings pot withdrawals and the FSCA plans to investigate why some funds take so much longer than others.
She says some initial delays arose because of the sheer volume of members wanting to engage on fund or administrator websites or WhatsApp channels that caused systems to crash.
Some funds had problems with the initial seeding or transfer to members’ savings pots, Buitendag said. Funds had to obtain updated investment values in order to seed the savings pot.
Funds need to check the accounts into which members requested payments be made. Where bank account details did not match what funds had on record, payments were delayed, Buitendag said. There were also some delays and challenges with the banking system, she said.
Brian Karidza, head of actuarial and benefit administration services at Government Employees Pension Fund (GEPF), told the ASSA conference that despite the fact that the GEPF had communicated that it would have a 60-day timeline for paying withdrawals, members complained about how long payments were taking.
They complained more when they realised members of other retirement funds were being paid, he said.
The huge volume of savings pot withdrawals the fund had to process led to a backlog in payments on retirement and resignation that the fund is still dealing with, he says.
Despite this, Karidza said the fund received 400 0000 applications for savings pot withdrawals amounting to R10.6 billion, which was less than expected. It has so far paid out 361 000 members an average withdrawal claim of R27 500 less an average tax deduction of R8 000.
Karidza says the biggest proportion of withdrawals came from members earning between R500 000 and R600 000 a year and aged between 37 and 45 years.
The GEPF is a defined benefit fund and applying the two-pot system to these funds has proven much more complex than expected, Andrea Bezuidenhout, a product development actuary at Alex Forbes, told the ASSA conference.
Defined benefit funds were advised to determine seeding amounts and contributions to the savings and retirement pots from September 1 by splitting members’ years of service. From September 1, actuarial values calculated using the fund’s defined benefit formula with one third of the period of service should be used to fund the savings pot.
But Bezuidenhout says different defined benefit funds accrue years of service at different rates. They also have benefits for spouses and gratuities or cash lump sums that can be taken at retirement.
Karidza said the GEPF’s gratuity did not quite match the one third that members of defined contribution funds can take in cash at retirement making it impossible for the fund to split contributions as required under the two-pot system without a benefit and fund rule change.
All retirement funds had to have their fund rules updated before they were able to process any payments from the savings pot. Acton said despite the short timeline for 
this, most funds rule amendments were approved in time.
The FSCA confirmed that 98 percent of funds’ rule changes had been approved.
Buitendag said 11 funds have rule amendments that have yet to be approved making it impossible for these funds to pay members’ withdrawal claims.
Acton told the ASSA conference that SARS’s decision to claim outstanding taxes from savings pot withdrawals was a big problem. When SARS deducts outstanding taxes, 
funds and their administrators are often the ones that have to explain to members why they are not being paid out or being paid out less than they expected.
Karidza said among the GEPF members who have withdrawn so far, 2 000 owed SARS an average of R7 000 in tax that was deducted from their savings pot withdrawals.
According to SARS’s statistics 28 500 people changed their minds about making withdrawals when they saw how much tax they would pay.
Buitendag said the FSCA received three two-pot related complaints and 23 two-pot related complaints were lodged with the Pension Funds Adjudicator. The adjudicator had also referred 1 450 queries for more information to funds and administrators.
FSCA commissioner Unathi Kamlana said the regulator also received complaints about high transaction fees that funds are charging to cover the cost of processing two pot fund withdrawals.
Buitendag said according to information the regulator had collected from larger administrators, the average transaction fee was about R357 on a R30 000 withdrawal.
Kamlana said the FSCA is not a price regulator but it has requested information from the industry and will engage with administrators next year on transparency, disclosure and fairness of the fees.
