Momentum’s R4.5 billion two-pot bonanza

Momentum has processed over 260,000 withdrawal applications under the new two-pot retirement system, totalling R4.5 billion.

Momentum is one of South Africa’s largest life insurers and integrated financial services companies, operating through brands like Momentum, Metropolitan, Guardrisk, and Eris Properties.

The insurer released its interim results for the six months through December 2024 – the first half of its 2025 financial year – on Thursday, 20 March 2025.

These results revealed that, through the insurer’s investment in digital solutions, its corporate and retail savings businesses were well prepared for implementing the two-pot retirement system.

This system was implemented in September 2024 and is one of the biggest overhauls of South Africa’s retirement savings system in years.

In short, under this new system, retirement contributions are split into two “pots” – a savings component and a retirement component.

This system allows South Africans to withdraw a portion of their retirement savings every year before retirement while another portion is kept in the vested “pot”.

Before this system was implemented, financial services companies across the country were scrambling to set up their systems in ways that would make the implementation as smooth as possible.

Prior to September, there was very little indication of just how widespread the demand for retirement savings withdrawals would be.

When the system was officially implemented, the floodgates opened, and thousands of South Africans applied to withdraw from their savings pots. Momentum’s clients were no exception.

The insurer revealed in its results that, by 14 March 2025, the Momentum Group had processed over 260,000 withdrawal applications totalling R4.5 billion.

It also revealed that this came at some cost to the company.

Momentum reported that the growth in its operating expenses was slightly above inflation across the group.

This was largely due to the higher likelihood of long-term incentive plan (LTIP) awards vesting due to the company’s strong share price gains over the period.

However, the company said this larger-than-expected growth was also driven by the investment and additional activity required to successfully meet the requirements of the two-pot retirement reforms. 

The two-pot system’s implementation also came with some benefits for the company.

The results further revealed that Momentum’s Metropolitan Life business saw its Present Value of New Business Premiums– which measures the total expected future premiums from new policies, adjusted for time value – grow by 2% to R3.3 billion. 

This growth was driven mainly by increased sales in long-term savings products, while insurance and life annuity sales declined.

The company explained that the two-pot retirement system partly drove the growth in demand for its long-term savings products.

It said Metropolitan Life launched new products tailored to the two-pot regulations, boosting sales in this segment.

The company also reported that the implementation of the two-pot system led to a surge in withdrawal requests, which created a backlog in its retirement claims processing.

It said this backlog may have slowed new annuity sales, as customers awaiting payouts may have delayed reinvesting in annuities.

Two-pot warning

In October 2024, Momentum joined a chorus of other financial services providers in warning South Africans to carefully consider the risks associated with withdrawing their savings under the two-pot system.

The insurer warned that South Africans who withdraw money from their retirement savings under the new system risk giving up a substantial portion of their income after retirement.

Actuarial Specialist at Momentum Investo Paul Menge explained that, in September 2024, the financial industry was reeling from the number of calls and emails to contact centres, as some people were desperate to access the retirement money they were allowed to withdraw.

Momentum Investo is a small product house within the larger Momentum group, and Menge said most of their clients contribute an average amount of R1,200 per month to a retirement annuity. 

He said some members supplement their savings in retirement funds at work and some work for themselves. 

“We were pleasantly surprised that only around 1% of our clients made retirement savings withdrawals,” he said. 

However, “we’re worried about how many of those who did make withdrawals fell in the age group of 40 to 49 years. Almost 50% of those who withdrew fell into this category”.

“This means they don’t have a lot of time left until they retire. Most of us realise that it is time in the market that earns us the most growth – and that the last couple of years are the ones where we build the most value.” 

This is because the more money you have, the more your growth can compound or “snowball”. 

“Think of it as a ball of dough: The more dough you have, the better the yeast to do its magic while it’s basking in a warm place to double in size,” Menge explained. 

“But, if a naughty child keeps stealing little balls of dough, you’re in trouble.”