Two-pot admin fees could top R1.25bn in first 6 months

According to actuarial firm, but fund administrators say the initial and ongoing costs to run the new regime are substantial.

South Africa’s retirement fund administrators have incurred enormous costs to prepare for the two-pot retirement system, and a lot of the costs will be ongoing, says Vickie Lange, head of best practice at Alexforbes.

Because of the increased running costs associated with withdrawal transactions, many fund administrators and retirement funds are charging administrative fees to recoup these costs.

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The administrative fees that fund administrators charge are currently being investigated by the Financial Sector Conduct Authority (FSCA), according to a report on BusinessLIVE on Tuesday.

Responding to an enquiry by Moneyweb, the FSCA said: “As part of our supervisory obligation, the FSCA is looking at the fees charged by administrators and funds in respect of the two-pot legislation.”

The FSCA is anticipated to issue a report on its findings before the end of January 2025.

Read: Two-pot: Retirement withdrawals explained

‘A material windfall’ 

Moneyweb understands that the FSCA sent a questionnaire to retirement funds and administrators asking them specifically about the fees they charge as well as the costs involved in readying themselves for the two-pot system.

Keystone Actuarial Services, a Johannesburg-based consultancy firm, did a survey in September on the costs of the two-pot system. Based on feedback from fund administrators, it can “reasonably be assumed” that an average fee of around R320 is changed by administrators per (savings pot) withdrawal, it notes.

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Keystone estimates that the administrative fees charged for savings pot withdrawals could range from R640 million to R1.25 billion from the period 1 September 2024 to 28 February 2025.

Assuming retirement fund members make withdrawals in each tax year, this means the fees charged by fund administrators could reach between R500 million and R1 billion annually.

“This will represent a material windfall to the administrators and a consequent reduction in member benefits,” the company notes.

“We would hope that all administrators, once they have recovered any initial expenses of implementing the two-pot system assess their ongoing costs and, if applicable, adjust their savings component withdrawal fees appropriately.”

Substantial initial and ongoing costs

Lange told Moneyweb that while she could not provide exact numbers as Alexforbes is in a closed period, the costs associated with the two-pot system have been “substantial”.

Listen: Are there long term implications to the two-pot system?

“There were once-off costs in terms of upgrading technology to cater for the new claims [under two-pot], [and] also ongoing expenses to maintain the previous retirement regime on top of the old one, which adds an extra layer of costs.”

Alexforbes also had to train existing staff and employ new personnel in its administrative team to deal with the additional volumes of claims.

“As much as you try to digitise, you still need manpower to make sure claims are valid,” Lange notes. ADVERTISEMENT: CONTINUE READING BELOW

In the first six weeks of implementation of the two-pot system, Alexforbes received more than 260 000 queries from fund members through email and its call centre.

“You can imagine the manpower needed to respond to these volumes,” she adds.

Listen: Beware the risks of the two-pot retirement system

Alexforbes charges its fund members who withdraw from their savings pot a scaled transactional fee of 2% of a pre-tax withdrawal amount at a minimum of R100 and a maximum of R600.

“A scaled fee is standard practice where the pricing is different between the various member categories. For that reason, we opted to not charge a flat fee,” Lange says.

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Hiding fees in plain sight

Alexforbes will review its administrative fee in the near future, as the current fee structure is based on estimates, according to Lange. “Once we have seen the actual [withdrawal] figures we’ll review it, but the timing cannot be confirmed.”

Michelle Acton, retirement reform executive at Old Mutual Corporate, confirmed that it charges a flat fee of R250 per withdrawal for occupational schemes and R300 for the South African Retirement Annuity Fund.

These fees will be reviewed annually.

Acton says the “benefit” of charging a two-pot withdrawal fee is that only members who use the “functionality” will be charged.

Latest statistics

The South African Revenue Service (Sars) confirmed on Tuesday that fund members have withdrawn just over R35 billion from their savings pots since the beginning of September. Altogether, 1 914 306 tax directives were issued.

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Alexforbes has so far paid out over 331 000 claims, with a total payout value of R6.3 billion, says Lange.

“The withdrawals are in line with Alexforbes’s half-year tax estimates of a 1% to 2% impact on assets flowing out. But we think it will be closer to 2%.”

Old Mutual’s Acton says the group has received around 265 000 claims, and has finalised 251 000 of them to the value of R3.2 billion.

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