Is your company technically ready for the Two Pot system?

Last week we unpacked what the new two pot system coming into effect 1 September will have on the average consumer/investor.

As an expert in the banking and financial services industry for over 20 years, Digiata would like to keep you updated on the impact that the introduction of the Two Pot System will have on your system and business processes.

To briefly catch you up, South Africa’s private retirement industry, which manages around R3.27 trillion in assets, faces significant risks in the implementation of the new two-pot retirement system due to its tight deadline and potential mass withdrawals from funds.?

At the end of March, Parliament passed the Pension Funds Amendment Bill that will, from 1 September, require that funds be divided into three components or “pots”, split between savings, retirement and a vested portion.

Commonly referred to as the ‘two-pot system’, the new rules applicable to retirement funds are proposed to launch on 1 September 2024. Have a read here for more information on how this will work.

Some of the main concerns ahead of legislation going live are the following:

1. No immediate payouts

“One of the most important points to communicate is when their money will be accessible,” says Michelle Acton, retirement reform executive at Old Mutual. Acton heads up Old Mutual’s two-pot reform across all its retail and employee retirement funds and has been involved in the planning and implementation from the word go. Fund administrators can only start doing the seeding calculations (for the savings pot) from 1 September onward.”

The seeding calculation determines the initial amounts assigned to different components based on existing retirement savings. The amounts that will be allocated depend on the current amount of savings in each member’s retirement account and their market value and the process could take days to weeks depending on varying rules.

“Some administrators might only know what the fund value is on 5 September, or in mid-October. That does not mean they don’t comply with the legislation.”

1. The claims process

Only once the seeding calculation is done and the available amount confirmed can retirement fund members start submitting claims.

1. Not enough to withdraw

The minimum withdrawal amount from the savings pot is R2 000. The Actuarial Society of South Africa (ASSA) has warned that many retirement fund members will not have enough in their savings pot to make a withdrawal on 1 September. At least 20% of the country’s retirement fund members will not have enough money in their savings pot by that date to make a withdrawal.

1. New systems, new procedures

The switch to the two-pot system has required more than two years of planning, including building new systems, establishing new procedures, and training staff. Companies have had to digitise and automate everything including end-to-end testing [of the systems] that will need to take place way before 1 September.

How Digiata is able to help companies be technically ready for the Two Pot System

Digiata provides the technical expertise, experience and software solutions necessary to seamlessly integrate disparate data sources and systems along with designing and deploying bespoke solutions to automate workflows, perform complex calculations and provide in-depth reporting on the data to the banking and financial services sector.

• AI & Machine Learning: Leverage machine learning engines to predict whether a member is likely to withdraw and how much they are likely to withdraw allowing you to plan and mitigate liquidity issues before it becomes a problem.

• Custom Software Solutions: Developing tailored software solutions to manage the complexities of the Two Pot System and ensuring compliance with the new regulations.

• Data Assurance: Deploying solutions to provide assurance that the recent changes to your corporate line of business systems are accurate and in line with the new regulations of the Two Pot System. Send out alerts of any potential compliance issues before they become problematic.

• Data Integration: Integrating various data sources e.g. corporate line of business systems with peripheral solutions managing the Two Pot System calculations and reporting etc.

• Automated Workflows: Implement automated workflows to streamline the administration processes, reducing manual intervention and minimising errors all while providing the companies clients transparent and timely support.

• Business Intelligence: Developing reporting to provide up-to-date information on fund performance, contributions, and withdrawals, helping companies make informed decisions and track forecasts.

• Digital Forms: Develop and publish digital smart forms that can be validated upfront and processed automatically without the need to manual review or intervention allowing you to handle large volumes of withdrawals and policy amendments at scale.

References:

Pyper, L. 8 July, 2024. Two-pot: Expect delays in payments from the ‘savings pot’. Moneyweb. https://www.moneyweb.co.za/mymoney/moneyweb-financial-planning/two-pot-expect-delays-in-payments-from-the-savings-pot/

The Moneyweb. 10 June, 2024. Many won’t have enough in their ‘savings pot’ to access come September. Moneyweb. https://www.moneyweb.co.za/mymoney/moneyweb-personal-finance/many-wont-have-enough-in-their-savings-pot-to-access-come-september/

About Digiata

Digiata offers end-to-end solutions that cover a wide spectrum of business processes conducted in financial services companies including process automation, reconciliation and complex integration, payments and reconciliation, data analytics and customer experience. Digiata works with mission-critical, high-volume transaction platforms and systems for some of the leading banks and investment managers across sub-Saharan Africa and the UK, combining market leading software with industry innovation to solve specific business challenges for its clients. Digiata provides the perfect balance between a solution customised to business challenges and environment, plus the speed of implementation and agility of a team of experts who have a powerful toolset to draw on.