Old Mutual’s fund management arm, Old Mutual Investment Group, said it expects withdrawal requests from customers likely to cash in their savings when the two-pot retirement plan officially launches next March. He said internal data and insights showed an imminent flood.
Last month, the government released a bill outlining how the new two-pot retirement system, which will take effect on March 1, 2024, will be regulated.
Listen/Read: New Regulations in the 2-Pot Pension Plan and What It Means for You
From the effective date, contributions to the retirement fund will be spread across two pots. A third is transferred to a savings pot that can be soaked once a year, and the rest to an inaccessible retirement pot.
Significant increase in withdrawals expected
Old Mutual Investment Group expects 350,000 of its 600,000 member Professional Employer and Employee Feeder Fund customers to be eligible to withdraw on the first day of the new system. there is That’s according to Old Mutual retirement reform executive Michelle Acton, speaking Tuesday.
This is a staggering increase compared to the 60,000 to 70,000 claims currently processed each year.
Up to 10% of a member’s funds (capped at R25,000) will be transferred to the Savings Pot.
No maximum withdrawal amount is set and members cannot withdraw less than R2,000 if they choose to withdraw.
Who is likely to line up?
Acton said the high-level test asked members about whether they would be using their savings and returned answers about their income level and how far or near they were from retirement.
Customers nearing retirement were shown to be less likely to make withdrawals, as were high-income customers.
The latter is hesitant due to the marginal tax rate that accrues at the time of billing.
“You can see that a very high percentage of our country’s low- and middle-income people say they will definitely come to withdraw their assets,” Acton said.
“We expect a fairly high percentage of our 350,000 members to be trying in some way by March.” [into] April, claim your benefits. ”
Administrative costs should not be “cross-subsidized”
He warned that members would have to bear the additional administrative costs associated with processing claims, which they didn’t have to consider before the new rule as the industry races to prepare for March 1, 2024. He said that it is necessary to have a function that
“The proposition in this new world is, ‘In fact, the amount of administrators involved in processing these savings pot withdrawal perks is enormous,'” she said.
“Retirement funds need to enable trading features that have never had to be enabled before.”
She said the underlying administrative costs need to be fair and not impact members who choose to leave their savings untouched.
“We don’t want to give cross-subsidies to those who continue to withdraw to those who remain in the fund but have not withdrawn,” she said.
“The logic is, ‘The cost of any transactional function that needs to be built must actually be borne by the members who run that transactional function.'”
Read: 10 tips on the two-pot system for retirement savings
