Old Mutual Corporate recently hosted a webinar for intermediaries in the group employee benefits space around the Two-Pot Retirement System, and Old Mutual’s switch to digital claims, called MyClaim.

A number of themes were discussed, one of them being the critical role intermediaries and advisers will play in guiding and advising their clients and fund members towards 1 September, when Two-Pot will be implemented. 

Considering all the preparation required and changing to the new system, the right advice will be key, and the webinars highlighted three important areas of guidance that intermediaries should be aware, and wary, of.

1. Withdrawal advice without understanding the implications

By far the question most received by Old Mutual is when members will be able to access their savings and when payment will be made.

It’s an important question, but not one that should be answered without contemplation.

As much as two-thirds of participants in Old Mutual’s 2024 Savings and Investment Monitor had less than R50 000 of retirement savings, and of these only 29% preserved retirement savings when leaving or switching employers.

This raises an important question about whether members such as these should be considering early access to their savings at all.

Furthermore, 30% of Old Mutual’s fund membership will not have R20 000 saved by the end of August to make withdrawal of the seeding of the minimum amount of R2 000 to their Savings Pot possible after 1 September.

In short, they won’t be able to withdraw anything until they have enough funds saved to make withdrawal possible. 

Make sure your clients and their employees are aware of these amounts and manage their expectations around when they’ll be able to withdraw their money from 1 September. 

Secondly, members need to understand that the Two-Pot system is aimed at helping members plan better for retirement, in part by providing a safety net by way of accessible funds in the Savings Pot, but more so by making preservation of the majority of their future savings compulsory.

A Savings Pot withdrawal transaction can’t be reversed once it’s gone through, and members need to be aware of that before committing to withdrawals.

Talking tax

The tax implications of Two-Pot decisions are widely misunderstood. 

Before focusing on withdrawals or the withdrawal process, make sure your clients know how much tax they’ll be paying. 

Members don’t have a clear picture of how large their tax bill may become due to a withdrawal, nor that any outstanding taxes will be deducted first before funds will be paid out to them.

Many members also don’t understand that Savings Pot withdrawals will be taxed at their marginal tax rates, or in many cases what their marginal tax rate actually is.

It’s important that they receive the right guidance on this, and have their affairs in order with SARS, before any withdrawals.

If your clients are members of an Old Mutual retirement fund, point them in the direction of our authenticated Two-Pot calculator to understand how much they’ll be able to withdraw, and what the tax implications would be.

2. Rushing over-55s into the new system

Many questions are being asked about retirement fund members who are older than 55 years and how they’ll be affected by the Two-Pot system. 

That’s because some members in this age group will get to choose to move into the system or not.

Before attempting to offer any advice, it’s important that your clients and their employees understand two distinctions:

1. Not all over-55s will get to choose

The option does not pertain to all retirement fund members who are currently over 55, but only to those who were over 55 on 1 March 2021.

2. It’s only relevant to provident fund members

The choice only pertains to the over-55s who were members of a provident fund on 1 March 2021 and are still members of that fund as at the Two-Pot implementation date (1 September 2024). 

This closed group of members can elect to move into the system once it’s implemented from 1 September.

There’s concern among some over-55s that they need to make the decision as soon as possible, but it’s potentially risky to advise any such member to move into the new system without proper contemplation because once they’re in, there’s no out. 

Rash decisions are unnecessary, as this group has some time to make the choice. This time period is still to be legislated, but the indications are that this opt-in will need to be made within 12 months of the Two-Pot implementation date. 

So, make sure you have a proper conversation before you advise any of your over-55 clients or members to move into Two-Pot or not. 

As Michelle Acton, Old Mutual’s Retirement Reform Executive and Two-Pot specialist, said at the event: “It’s a big decision, it’s a huge amount of advice and understanding members need to have, and we need to be very careful that members don’t just dive in because they want to access some money without understanding the longer-term consequences of that decision.”

3. Transferring money between pots

Some intermediaries and retirement fund members have been asking about the option of transferring money between pots, specifically out of their Savings Pot and into their Retirement Pot.

Members need to understand all the implications of this, for example, that the money won’t be available for future withdrawals from their Savings Pot anymore.

While the law does allow for these types of transfers, they’re not recommended at this stage. 

Until the industry better understands how they’ll work, it’s advisable that your clients don’t opt for them. 

It would be an irrevocable action that will not be reversible in future.

Do you have more questions on the Two-Pot Retirement System? Let’s talk.