FSCA wants reasons for high two-pot withdrawal fees
While it is no price regulator, it may insist on transparency, disclosure, and fairness of fees.
by Liesl Peyper · MoneywebThe Financial Sector Conduct Authority (FSCA) says it is identifying fund administrators that charge high transaction fees for members who withdraw funds under the two-pot retirement system, and they will be asked for the reasons thereof.
The watchdog hosted a media roundtable discussion on Friday where trends and challenges under the two-pot system came under the spotlight. It also gave an update on the issue of employers who are in arrears in paying over their workers’ retirement contributions to pension funds.
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The FSCA’s Corlia Buitendag, departmental head of retirement funds conduct supervision, shared some of the key challenges that have emerged since the two-pot system came into effect on 1 September 2024. They include system-related issues due to the volumes of withdrawal requests, account verification and payment delays, and slow turnaround times.
Consumer complaints specifically include poor communication from fund administrators, website downtime, delays in receiving payouts, and high transaction fees.
Buitendag says the regulator has since established that the average transaction fee charged for the maximum savings pot withdrawal of R30 000 is R357.
Read: Two-pot admin fees could top R1.25bn in first 6 months
The FSCA emphasises that it is not a price regulator, but as part of its supervisory role, it may insist on transparency, disclosure and fairness of fees charged by funds and administrators.
In a questionnaire circulated to pension funds and their administrators, they were asked about the costs of implementing new systems required under the new regime – both once-off and ongoing – as well as the amounts they charge per withdrawal transaction.
Transparency
Astrid Ludin, deputy commissioner at the FSCA, says different funds adopted different models whereby fees are charged. This depends on the volume of the work required, whether there are existing systems, and whether they needed to outsource any work.
“We are working through the responses and where we find outliers we’ll engage with them to understand it better. It’s important that there is transparency and comparable information available to funds – and to members to hold funds accountable.”
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Ludin points out that ultimately the pension funds are responsible for negotiating the level of charges with administrators. “But smaller funds have less bargaining power, and in this instance, we would like to play a supervisory to help balance the costs.”
Withdrawal trends
In the presentation, the FSCA shared some of the latest trends in withdrawals from savings pots.
The portion of withdrawals per annual pensionable salary category are as follows:
- Less than R59 988 – 4.63%
- R60 000 to R119 988 – 25.05%
- R120 000 to R179 988 – 15.67%
- R180 000 to R239 988 – 25.82%
- R240 000 to R359 988 – 13.83%
- R360 000 to R599 988 – 12.4%
- R600 000 to R959 988 – 1.77%
- R960 000 and above– 0.83%
The highest percentage of withdrawals were therefore from members earning between R15 000 and R20 000 per month, and the second highest from those with a monthly salary of between R5 000 and R10 000.
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Considering withdrawals per age category, the highest percentage of withdrawals (41.85%) were by members in the age group 31 to 41, followed by those between the ages of 41 to 51 (34.86%).
Only 0.66% of fund members above 60 years withdrew funds from their savings pots. The second lowest percentage of withdrawals (9.47%) were from members aged 21 to 31.
Employers in arrears
The FSCA has published the names of 7 770 employers who are in arrears with their workers’ pension fund contributions on its website.
The arrears amount to an estimated R5.2 billion, affecting 310 000 members. The biggest culprit as far as arrear contributions are concerned is the private security sector with 36.2% of outstanding contributions, followed by hairdressing, beauty and skincare at 12.37%.
The FSCA notes most of these employers are small enterprises with variable incomes and contract employees.
Municipalities also culprits
However, municipalities are also an employment sector whose contributions are regularly in arrears. Recently, a top official in the Kamiesberg Municipality was arrested after more than R2 million in employee pension contributions had been allegedly unpaid for nearly five years.
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According to the FSCA’s statistics, 149 municipalities out of the total 257 – representing 58% – were reported to be in arrears with their employees’ contributions.
The Free State is the province with the biggest portion of arrears (68%), at a total of R1.4 billion.
The names that feature on the FSCA’s website include:
- 2 003 employers that have outstanding contributions of more than R50 000 that have been outstanding for a period of more than five months;
- 200 employers who have outstanding contributions of more than R50 000 but the last contribution date has not been provided;
- 113 employers whose outstanding contributions are less than R50 000, but the outstanding late payment interest is more than R50 000 and has been outstanding for more than five months; and
- 20 employers that have not contributed since the date of participation in the retirement fund.
The names of another 5 440 employers have not been included as they do not meet the thresholds.
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