FirstRand Group CEO Mary Vilakazi says the proceeds from the two-pot system are not necessarily going toward consumption and debt repayments, with some South Africans taking the opportunity to invest offshore.
“I have heard from an asset manager a concern that advisers are advising professionals to draw down on this money and take savings to use for their offshore savings. It is not so obvious that the money goes into consumption and paying off debt, which has been part of the debate. I think people might see an opportunity in paying the tax early and going to save somewhere else,” she told Business Times after the release of the group's financial results for the year ended June.
Vilakazi said while all the withdrawals would be assets under management by asset managers under pressure, in the long-term it meant the money that stayed uncashed would be in the system longer.
That is a positive, but in the short term it does mean people are drawing down on long-term savings. We are a country that does not have sufficient long-term savings, so our hope is that the money gets used productively and that it does not go into consumption.
— Mary Vilakazi, FirstRand Group CEO
“We have to live with the adjustments as this system gets rolled out and hopefully some people will still preserve while in the past they have not preserved.”
Sars said this week the value of two-pot system applications was a whopping R4.1bn since the system began two weeks go, with 161,607 tax directive applications including 159,853 for savings withdrawal benefits, which is 98.9% of the applications received between September 1 and September 10. This meant Sars had received an average of 17,964 tax directive applications a day.
Vilakazi said the ultimate objective of the two-pot system was to help improve pension preservation in the pot that does not get drawn down.
“That is a positive, but in the short term it does mean people are drawing down on long-term savings. We are a country that does not have sufficient long-term savings, so our hope is that the money gets used productively and that it does not go into consumption.”
She said there was a high risk that that would happen. “Retailers are pencilling in a season in which consumers are going to be spending on retail. I guess one has to look at the longer-term benefits of the preservation and hope people are going to use their long-term savings wisely.”
She said FirstRand had not made assumptions that people were going to repay debt. “We have not made assumptions really about how that money is going to flow through our own customer base. It is a wait-and-see approach.”
The two-pot retirement system splits one-third of pensions into a savings pot, which can be accessed for emergencies, and a retirement pot (two-thirds) which cannot be touched until retirement age.
FirstRand, whose subsidiaries include FNB, RMB, Aldermore and WesBank, recorded a 20.1% return on equity, in line with its 18%-22% target range, and a 4% increase in earnings to R38bn in the year under review.
The group set aside a R3bn provision relating to the investigation by the UK motor commission into its MotoNovo business, while impairments climbed to R12bn from R10bn in the prior year, given pressure on FNB.
“FNB is like the engine of the group [representing] two-thirds of the profits. When retail is under pressure, the whole group feels it. To have made the provision and stomached retail under pressure, and deliver 4% higher earnings — that is resilience from the portfolio,” Vilakazi said.
Referring to the MotoNovo issue, she said: “Unfortunately, we were hoping to get to the point where we had more clarity about how the regulator wants to proceed — they have now moved it to next year.”
The UK’s Financial Sector Conduct Authority in January began a probe into whether the commission paid to motor dealers is fair to customers. The authority said dealers cannot get commission when a client pays a higher interest rate because that could be to the detriment of customers.
The UK authority said it was reviewing historical motor finance commission arrangements and sales across several firms, including MotoNovo.
Vilakazi said there had been many cases brought against MotoNovo. “We have been busy with these for the past two years and have won more than 70% of the cases that have been taken to court. It has not always been obvious that because that rate was paid there was detriment.”
She said the review was a more co-ordinated process than having everyone suing every day and defending lots of cases on the go.
“There is something positive about the review. It is just that we are uncertain about what the outcome will be, and to put minds at ease about whether there will be redress, we decided to be prudent and set aside the provision.”
Vilakazi, who succeeded Alan Pullinger last year, is FirstRand's first female CEO.
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