Two-Pot

The withdrawal activity within the first month of the now famous ‘Two-Pot’ retirement thing has been frenetic for administrators. The figure is something over 6 billion Rand withdrawal applications in the first three weeks. SARS wins, with on average probably 20 to 25% of that. Banks will get some loans reduced and then the economy will benefit hugely, because even though these withdrawals are supposed to be for emergencies, most of them will simply be for wanting to spend money. Yet it is not a lot of money that people can get out – on average about R3000 to R22,000, after tax. That’s what we’re seeing with our corporate employee members who have requested this. With the expectation of 50 to 80 billion Rand of withdrawals in the first year, SARS and the economy will smile. I wonder if the sell-off needed for all this from the stock market will put a downward pressure on market prices…

Staying with the subject, it has also already come to light how some withdrawal applications have discovered that member’s pension fund money is not actually there to withdraw. A couple of hundred million Rand of this has been unearthed already. This happens when an employer deducts funds from an employee and then does not pay the money across to the fund administrator, either due to inefficiency or to spending the funds itself. It can also happen when the fund administrator – who has received the money from the employer – does not pay it across to the asset manager or the insurance benefits provider.

When we used to help administer a couple of pension and provident funds (very long ago), we discovered a pattern of this. Adrienne began to record and date and track the movement of the relative portions of money from employer to middle-man administrator to the investment manager and the insurance provider. Then she would contact someone if they had not moved in time. But then we moved these corporate clients away from such spaces to a far better and cleaner and more efficient way of doing employee benefits with no middle-man administrator.

This matter of employee’s funds not being paid across is a problem. It will be a very interest story, which I should imagine will also result in some further industry and legal actions.

You might have seen news or read about this new Two-Pot retirement system.

I don’t like it. It basically lets people access the 1/3rd of their retirement savings that they were only allowed to access at retirement, now during the years before retirement. With minimums and maximums and some rules.

Supposed to be for ‘emergencies’, so the reason behind it all states. But who determines or regulates what an emergency is…? No one can and no one will. I have one corporate client already wanting something for a holiday. This ruling is not going to fix or help people’s ability to retire independently.

Every withdrawal during these prior years is taxed. And SARS is looking forward to this: they already anticipate a 5 billion Rand revenue earnings from this tax over the next year or so.

So you reduce your retirement wealth, your funds have less time to grow, you pay income tax on every withdrawal, you do this every two or three years for a couple of thousand Rand, and then you’re worse off at retirement.

Not a great idea.