Old Mutual CEO warns about new retirement system

Iain Williamson

Old Mutual CEO Iain Williamson has warned that the new two-pot retirement system will result in significant outflows from retirement funds in the short term but may benefit the industry in the long term. 

Williamson made these comments in a media briefing following the announcement of Old Mutual’s financial results for its 2023 financial year. 

The company’s insurance revenue grew by 7.84% to R68.26 billion, while non-insurance revenue grew by 12.1% to R15.71 billion.

The company’s strong profit growth was largely driven by its impressive investment return, which increased from R20.41 billion to R135.9 billion – a 565.79% increase.

This resulted in profit after-tax growing from R5.65 billion to R7.63 billion.

However, the expected implementation of the new two-pot retirement system on 1 September 2024 poses a risk to Old Mutual as one of the country’s largest administrators of retirement funds. 

Commonly referred to as the ‘two-pot system’, the new rules applicable to retirement funds are proposed to launch on 1 September 2024. 

This will require all future contributions made to retirement funds to be split into two portions – 

  • Two-thirds of your contribution will be allocated to a retirement component, which must be preserved until you retire.
  • The remaining one-third will be allocated to a savings component, from which you can withdraw once per tax year before retirement. 

The withdrawal amount will be limited to the value in the savings component at the date of withdrawal. 

Williamson said implementing this system will inevitably result in material outflows from retirement funds in the short term. 

“We expect to see material outflows from the effective date for a few months and then a gradual slow down to a steady state,” he said. 

This has the potential to significantly impact the earnings of asset managers who are heavily exposed to retirement products. 

Williamson added that he thinks the reforms will be positive for the industry in the long run as it will encourage South Africans to leave most of their savings invested for retirement. 

He also predicted that the two-pot system is unlikely to be implemented by the 1 September date given by the National Treasury as Parliament still needs to pass legislation to enable it to be created. 

This is unlikely to be done before September due to the national election at the end of May, following which a new political administration may be in place. 

Following the passage of legislation, regulators will have to then draw up regulations as to how the system will be overseen by them and provide guidance to asset managers as to how it will work. 

Only after that can companies like Old Mutual prepare for the effective implementation of the system.