Like other fund managers, Alexforbes was inundated with withdrawal applications from pension fund members since 1 September.
Financial services group Alexforbes has paid out R4.6 billion to pension fund members who applied to withdraw funds from the savings pot of their pension funds under the two-pot retirement system.
Dawie de Villiers, CEO of Alexforbes, announced the two-pot retirement system figures with the company’s financial results for the six months ended 30 September 2024.
“The two-pot retirement system represents the most significant change in the history of South Africa’s retirement funding landscape, with ripple effects now and into the future. It immediately provides limited access to emergency savings and is projected to improve long-term retirement outcomes by up to 2.5 times current levels resulting from the impact of compulsory preservation,” he said.
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De Villiers said since 1 September, when the two-pot retirement system was implemented, Alexforbes received claims from 350 000 members, approximately 32% of its entire membership base, to the value of about R6.5 billion before tax.
More claims than in past two years
So far, 340 000 claims have been paid to the value of about R4.6 billion after tax and 99% of claims have been paid within service level arrangements of 20 business days. The average claim size before tax was R19 000.
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De Villiers said the volume of claims processed in two months is more than two years of normal claims volume. Alexforbes had over 4 million logins to the AF Connect member portal to date, while the company recorded over 550 000 visits to its MyMoneyMatters financial literacy site.
Alexforbes also conducted a survey among the claimants and found:
- 86% are happy with their decision to withdraw.
- 96% were aware that their long-term retirement outcome would be affected.
- 96% were aware that they would pay taxes on their withdrawal.
- 50% used their emergency savings pot claim to offset debt.
- 30% used their emergency savings pot claim to pay for essential living expenses.
- 13% used the emergency savings pot claim to make major household purchases.
- 63% plan to claim again.
- 37% do not plan to claim again.
Two-pot retirement system withdrawals’ impact on GDP
De Villiers said Alexforbes anticipates a marginal impact on gross domestic product (GDP) growth resulting from consumers spending money they withdrew under the two-pot retirement system ranging from 0.1% to 0.3% in 2024 and 0.2% to 0.7% in 2025.
“We expect that the inflationary impact of this spending will be negligible but that the impact on the fiscus will be more meaningful. Better tax receipts could improve the debt-to-GDP ratio by 0.5% to 1.1% of GDP in the 2024/2025 tax year and 0.8% to 2.3% in 2025/2026 tax year.”
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He pointed out that an under-appreciated impact of the two-pot retirement system is that members will now have to make an active decision regarding the compulsory preservation of their retirement pot upon changing employers.
“Previously, most members would have elected to withdraw their entire fund value in cash. The implication is that members will have to be more engaged with their retirement funds and their options at exit. We expect that the increase in engagement necessitated by the preservation of the retirement pot will amplify preservation levels of vested and savings pots resulting from improved access to retirement benefits counselling, digital platforms and financial advice.”
Alexforbes’ six months results
Alexforbes announced robust financial results and De Villiers said the company is pleased to deliver another set of results that demonstrates its continued growth and ability to create value.
“Our operating income increased by 12% to R2.14 billion thanks to the consolidation of acquisitions completed in previous financial years, higher average assets under management that benefitted from positive market performance, inflationary increases from within the retirements and healthcare consulting client base, higher than expected two-pot claims volumes and high client retention.”
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Operating expenses of R1.72 billion increased by 11% and reflect the impact of operating expenses from acquisitions that have been fully consolidated, higher personnel and technology costs, as well as higher two-pot-related expenditure. Profit from operations (before non-trading and capital items) increased 13% year on year to R447 million, he said.
A gross interim cash dividend of 22 cents per share has been declared, which amounts to 88% of the normalised headline earning per share. The interim dividend is up 10% year on year.
