The regulator said challenges to the two pot system withdrawal include high transaction fees, system-related issues, and employers and municipalities in arrears
The Financial Sector Conduct Authority (FSCA) has outlined key challenges to the newly implemented two pot withdrawal system.
According to Corlia Buitendag, the Department Head of Retirement Funds Conduct Supervision of the FSCA, challenges that have emerged include high transaction fees, system-related issues, and employers in arrears.
Additionally, the FSCA reported registration of administrators is now 98% complete.
High transaction fees for two pot system withdrawal
Buitendag said that the FSCA is looking into high transaction fees for members accessing funds through two-pot retirement withdrawals.
The watchdog identified the average transaction fee was R357, roughly 1.20%, for a maximum withdrawal of R30 000.
While the FSCA reiterates it is not a price regulator, it will uphold its supervisory role by demanding transparency, disclosure, and fairness of fees charged by funds and administrators.
The FSCA sent a questionnaire to pension funds and their administrators to determine the cost of implementing the new system, including the amounts charged per two-pot system withdrawals.
According to FSCA Deputy Commission Astrid Ludin, administrators use different models; therefore, different fees will be charged.
Some administrators might have to charge larger fees if they need to develop new systems or outsource work to implement the new two pot system. While others might charge smaller fees if there are existing systems in place.
She adds that any administrators considered “outliers” will be engaged.
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“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,” said Ludin.
Two pot withdrawal trends
In a media roundtable discussion, the FSCA presented the latest two pot withdrawal system trends.
According to the FSCA, the highest percentage of withdrawals were from members earning R15 000 to R20 000 per month.
Moreover, an exit poll conducted by Discovery found that the major reasons why members withdrew their two pot savings were for home/car expenses (24%), payment for short-term debt (21%), and private school education (20%).
Below is a table showing the percentage of withdrawals based on annual pensionable salaries.
| Annual salary | Percentage of withdrawals |
| Less than R59 998 | 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% |
Meanwhile, two pot withdrawals based on age are as follows:
| Age range | Percentage of withdrawals |
| 21 to 30 | 9.47% |
| 31 to 40 | 41.85% |
| 41 to 50 | 34.86% |
| 51 to 60 | 13.16% |
| 60 and above | 0.66% |
The highest percentage of two pot withdrawals were by members in the 31 to 40 age group (41.85%), while the lowest percentage was ironically from fund members aged 60 and above (0.66%).
Read more: South Africa inflation rate drops sharply, lowest since 2020
The low percentage of withdrawals from senior members may be because, by default, members who were aged 55 and over during the time of implementation are not included in the two-pot system. However, they can apply to participate at any time.
System-related issues
The FSCA also addressed challenges and complaints received from members.
According to the regulator, members experienced system-related issues due to large withdrawal requests.
These issues specifically include difficulty in account verification, payment delays because of poor communication with banking systems, website downtime, login issues, and incorrect details.
Moreover, some members provided incorrect tax numbers, leading to seeding delays.
Meanwhile, the South African Revenue Service (Sars) has received over 2.15 million direct applications since the implementation of the two pot system. The tax agency reported a total withdrawal of R35 billion from its members.
The FSCA has assured members that they are further engaging with SARS to resolve the issues.
Employers in arrears
The FSCA has also published the names of 7,700 employers with pension fund contributions in arrears after receiving reports from 51 pension funds that these employers are not paying their pension fund contributions.
The unpaid pension fund contributions amount to R5.2 billion, affecting over 31,000 pension fund members who will not be able to access their two pot retirement withdrawals.
According to the FSCA, the top offenders are mostly small employers with contract employees, such as private security (36.20%), beauty and skincare (12.37%), and construction (8.57%).
In a press release published by the FSCA, they stated that the 2330 of the 7700 employers in arrears have contravened Section 13A of the Pension Funds Act 1956 (PFA).
Additionally, the regulator warned employers in arrears that withholding contributions is a serious offense, and they can be charged with theft or fraud.
“The failure of employers to pay retirement fund contributions has severe consequences for members…Withholding these contributions despite deducting the contributions from employees’ salaries, is a serious offense that could amount to theft, and in some cases, fraud.” said the FSCA.
Read the full press release here.
While the FSCA noted that its ability to address non-compliant employers is limited, the regulator is fast-tracking the Conduct of Financial Institution Bill (CoFi), which will allow it to directly sanction and take legal action against non-compliant employers.
Municipalities in arrears
The FSCA also name-dropped 149 municipalities out of 257 (roughly 58%) of South African municipalities that are regularly in arrears.
According to the Ministry of Finance, the municipalities owe a total of R1.4 billion to their employees’ pension funds. The outstanding figure would account for R5.4 million for every municipality in the country.
In September, the Mafube Local Municipality was found to have failed to transfer R38 million to the Municipal Workers Retirement Fund (MWRF) even after deducting the amounts from their employees’ salaries.
As a result, many municipal employees found that they were not able to withdraw money from their savings pot under the two pot retirement system.
Meanwhile, the Ministry reiterates that the Pension Funds Act of 1956 (PFA) requires employers, including municipalities, to deduct pension contributions from their employees and transfer the fund within seven days. Failure to do so is a criminal offense.
FSCA highlights importance of compliance to the two pot system
The FSCA reiterates that, in the overwhelming majority of cases, retirement funds are the only form of savings for working South Africans. Moreover, savings reduce the burden of care on the government and taxpayers.
Currently, only 10% of South Africa’s population is on track to retire comfortably.
The two pot retirement system was implemented to help South Africans manage their financial stability, while also allowing partial withdrawals for emergencies.
The regulator encourages members to report employer non-compliance directly to their employers or retirement funds or lodge a complaint with the Office of the Pension Funds Adjudicator.
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