Alexforbes takes R6.5 billion two-pot hit 

Alexforbes posted solid results for the six-month period to the end of September, where it revealed that its clients had submitted withdrawal claims for R6.5 billion from their retirement funds under the new two-pot system. 

It said that R4.6 billion worth of claims to 340,000 of its members have already been paid out. 

The company said that the two-pot retirement system represents the most significant change in the history of South Africa’s retirement funding landscape, with ripple effects now and into the future. 

It immediately provides limited access to emergency savings and is projected to improve long-term retirement outcomes by up to 2.5 times from current levels from the impact of compulsory preservation.

Since 1 September, when the two-pot system was implemented, 350,000 Alexforbes members submitted claims to the value of R6.5 billion pre-tax. 

The financial services firm said the average claim size is around R19,000 pre-tax and that the volume of claims processed in the past two months is more than two years of normal claims volume. 

Alexforbes anticipates a marginal impact on GDP growth resulting from two-pot spending ranging from 0.1% to 0.3% in 2024 and 0.2% to 0.7% in 2025. 

The company expects that the inflationary impact of such spending will be negligible but that the impact on the fiscus will be more meaningful. 

Better tax receipts could improve the debt-to-GDP ratio by 0.5% to 1.1% of GDP in the 2024/2025 tax year and 0.8% to 2.3% in 2025/2026 tax year.

In the immediate term, Alexforbes appears to have benefitted from the implementation of the two-pot system as higher claims columns generated greater fee income. 

Including benefits from the improved performance of South Africa’s financial markets and higher consulting fees, Alexforbes’ operating income surged 12% to R2.14 billion. 

However, its operating expenses also grew strongly by 11% to R1.72 billion. This increase is due to higher personnel and technology costs, as well as “higher two-pot related expenditure”. 

Thus, the company’s profit for the period only grew 8% to R367 million and headline earnings were up a marginal 3% to 28.4 cents per share. 

 “We are pleased to deliver another set of results that demonstrate our continued growth and ability to create value. Our total return to shareholders over the past four years is 46.9% per annum,” CEO Dawie de Villier said. 

De Villiers attributed this to the successful implementation of our strategy by a disciplined team despite a challenging operating environment. 

He explained that the company is uniquely sensitive to economic tailwinds, market appreciation and member engagement. 

A gross interim cash dividend of 22 cents per share was declared by Alexforbes, which amounts to 88% of the normalised headline earning per share. The interim dividend is up 10% year on year.

“Our campaign to position Alexander Forbes Investments as an investment destination for clients launched in this period. Alongside these and other activities, we intend to win a greater share of assets from clients across institutional and retail segments,” the company said. 

This has been led by the company’s entrance into the discretionary fund management business, with the launch of Investment Solutions by Alexforbes and the integration of its financial advisory business.