Alexforbes says two-pot retirement system is a gamechanger

Alexforbes expects a retirement sector outflow of about R50bn when a two-pot system is implemented in September, backing the system to deliver long-term positive results for sector and consumers.

Dawie de Villiers, CEO of the retirement fund administrator, said: “We have done a lot of modelling. We expect about 1% of the assets of the industry to be paid out in the first year of the system ... as a company we expect withdrawals of about R5bn. The whole industry has assets of about R5-trillion. So we expect about R50bn to be withdrawn from the whole industry. These are rough estimates.

“The great thing is that after the withdrawals, preservation kicks in. The outflows from the industry will be less and less in the outer years. I am excited about the two-pot system. It is going to be great for the man on the street.”

The two-pot system is one of the most significant financial reforms in SA, splitting retirement contributions into two pots with one-third going into the savings pot, which workers can tap into if they are in a pinch, and the remaining two-thirds into a retirement pot, which is off limits until retirement.

The changes are likely to have far-reaching implications for executives in retailing, tourism and banking in a country where consumers battle heavy debt, high interest rates and a higher cost of living.

De Villiers was speaking to Business Day shortly after the company issued its annual earnings report, showing a solid performance and strong revenue growth. The group reported a 12% rise in operating income to R3.9bn for the 12 months to end-March due to the execution of its strategy, new business wins and the implementation of acquisitions, it said on Monday.

Headline earnings per share (HEPS) from total operations rose 29% to 61.5c due to the financial performance of the discontinued operations in the current year. HEPS from continuing operations were up 16% to 52.9c per share.

‘Good feedback’

Profit from continuing operations rose to R580m from R553m. Closing total assets, including assets under administration and assets under management, increased 16% year on year to R525bn. A final dividend of 30c per share was declared, bringing the total annual dividend to 50c, up 19% year on year.

The board declared a special dividend of 60c per share, distributing a further R778m in available cash to shareholders and reducing the group’s surplus capital position. The group recently threw its hat into the discretionary fund management market after indicating its aim to make a play for the R500bn market seven months ago.

“We have had very good feedback from the market. I would want that business in the first year to have at least R5bn of assets under management,” said De Villiers. Markets welcomed the results and special dividend, with the share price up as much as 10.6% in intraday trade. The group’s value on the JSE shot up more than 30% in the past year. At close of trade, the share price was up 4.78% to R7.01.

Update: June 10 2024
This story has been updated with new information.

mackenziej@arena.africa