Vickie Lange, Head of Best Practice at Alexforbes
EBnet: What are AF’s high level views of the results of the survey?
AF: We’re pleased that the FSCA has issued their report as it creates a transparent view of the status quo of the two-pot fees. That said, fees are but one dimension of the impact of the two-pot system and we would urge readers to consume the report in the context of the administration experience actually being delivered to members.
EBnet: What challenges has AF encountered in processing two-pot withdrawals (e.g., system delays, high request volumes, or verification issues), and how have these affected fee structures?
AF: Since 1 September 2024, Alexforbes has processed and finalised over 530 000 savings pot claims within an average turnaround of 7 working days per claim with 99% of these being within standard service levels. We experienced initial temporary disruptions to our online capability due to the surge in claims over the first week in September but were able to adapt to accommodate accordingly thereafter. It is critical to note that in addition to the significant volume of savings pot claims which have been processed, we have also processed over 57,000 normal benefit payments with 95% of these being within standard servicing levels despite the additional complexity of managing such claims in a post two-pot environment. Our dedicated savings pot administration team, member portal, call centres and walk-in centres continue to diligently provide support to members of our retirement funds.
EBnet: 42% of administrators charged a savings pot withdrawal fee or increased their base admin fees, or both. I see in the Appendix to the survey results that AF charged a transaction fee of between R100 and R600 to process each savings pot withdrawal claim. Can you talk retirement fund members through why this fee needs to be charged?
AF: Alexforbes charges a scaled transactional fee of 2% of the pre-tax withdrawal amount (including VAT) for all members withdrawing from their savings pot before retirement (but not on resignation or retrenchment). This is subject to a minimum fee of R100 and a maximum fee of R600. Given its significance, the two-pot reforms have meant additional costs, once-off and ongoing, to ensure a safe and secure operational transition to this regime. Our overall aim is to ensure quality administration services on a sustainable basis, whilst supporting members to make good decisions when balancing their short-term and long-term goals. To achieve this the implementation of a transactional fee was necessary.
EBnet: Did AF increase their ongoing, or what the FSCA calls the base, administration fees due to two-pot?
AF: Yes, Alexforbes implemented base increases to administration fees.
EBnet: If yes, perhaps talk fund members through why this increase is necessary?
We have proactively anticipated the complexities associated with the Two-Pot system and have invested significantly in the readiness of our systems, teams and processes to manage these regulatory changes. As a result, our claims processing — including normal withdrawals, retirements, and other benefit payments — continues to operate efficiently and reliably, with minimal interruption to turnaround times or member experience. To meet these objectives, significant upfront and ongoing investments into our administration, digital capabilities and operations have been made. We will also continue to invest on an ongoing basis for the benefit of our clients. These investments ensure that quality services are provided in respect of the additional requirements of the two-pot system. Transactional fees and an increase to base administration fees were implemented to recoup overall initial costs, ongoing costs and to ensure sustainable administration services into the future. We believe this is a balanced, efficient and fair approach to deliver on our services to current and future clients.
EBnet: How does AF plan to manage ongoing costs for administering the two-pot regime, and will these lead to future fee adjustments or alternative cost-recovery methods?
AF: Costs will be managed prudently and in line with two-pot requirements as well as our commitment to excellent client servicing. Alexforbes will review fees annually and any adjustments will be communicated to clients.
EBnet: The FSCA point out that the initial investment in two-pot implementation will be recovered around year 3, will AF be reducing their ongoing fees once these costs have been funded?
According to the FSCA report “The administrators (35) that intend to levy a fee to recoup the once-off costs, expect to recover the costs over varying periods of time, with some indicating as little as three years, while others intend on spreading these over a period of five to 10 years.” Initial costs are recouped over time, however ongoing additional costs as well as additional investments into the future will be incurred. Alexforbes will review fees annually and any adjustments will be communicated to clients.
EBnet: I want to focus for a minute on the 40% of administrators who advised that they “absorbed” the cost impacts of two-pot. Perhaps explain that a bit more for trustees and manco’s why these administrators might have been able to do that?
AF: The FSCA report states “As is clear from Table 2, many administrators (40%) noted that once off development costs will be absorbed by the administrator. It should, however, be noted that a number of these relate to self-administered funds, which ultimately means that the fund expenses increase, and the source of general expense funding will need to increase to cover the higher expenses. A number also noted that they will absorb part of the cost and recoup the rest by applying various recovery methods.” It’s worth noting that this report is at a point in time, and therefore in the fullness of time should the survey be repeated there may be changes in the results as administrators have had practical experience within the two-pot regime resulting in such costs ultimately being passed through to members.
EBnet: Let’s talk about the cross subsidisation of fees that the FSCA raises. In my mind, there are two instances: 1 is where those members who don’t withdraw pay higher base fees to recover the costs of those who do, and the second is where future administration fees are now higher to recoup the initial investment – which the FSCA notes as being as much as over 1 550% the cost experienced – meaning future members subsidise current members. Your comments.
AF: Cross subsidisation within group arrangements such as retirement funds is common practice and allows for benefits to be provided more broadly. All members of a retirement fund benefit from the two-pot system – all members have a savings pot, retirement pot and vested pot. All members have access to their savings pot once in a tax year should they need it. Additional cost is incurred when members decide to exercise their option to claim from their savings pot. Therefore in applying the fees across the full membership of retirement funds a balanced, efficient and fair fee methodology is necessary.
EBnet: To wrap up, could you see a reality where administrators start looking at alternative fee models (for example, pay per service models)?
AF: This possibility exists.
EBnet: Any other interesting pointers you think we haven’t spoken about today?
Thank you for providing Alexforbes the opportunity to comment. We encourage stakeholders to evaluate the quality, consistency and efficiency of administration services delivered over the fullness of time when taking such costs into account. We understand how important it is that members have confidence in the timely and accurate processing of their benefits — especially during a time of regulatory change. Our ability to maintain robust service levels during this transition is a clear demonstration of our operational strength, the value created by our significant investment in our systems to prepare for the Two-Pot system and client-centric philosophy.
ENDS
