South Africa is at an inflection point: it has the pivotal opportunity to turn retirement savings into a national asset. Key to unlocking this opportunity is to view the adoption of the Two-Pot reform as the beginning of a long-term economic strategy, not the end of one.
Australia set out on this path more than three decades ago, and its success shows what is possible when retirement savings are transformed from a wage substitution tool into a multi-trillion-dollar pool that finances roads, ports, energy grids, and public infrastructure. Today, Australian workers receive benefits that are the envy of the world, while at the same time helping to build the country around them.
This outcome wasn’t accidental. It took political consensus, policy discipline, and sustained implementation over more than three decades. The lesson isn’t that Australia had better conditions. It’s that they made a plan and stuck to it.
South Africa now has the opportunity to do the same. If the country builds broad-based participation in the retirement system and scales up contributions over time, it could become more than a safety net; it could become a funding engine for national development.
First came coverage
Australia’s broad-based universal superannuation system, known as the Superannuation Guarantee (SG), was launched in 1992, starting with a modest 3% employer contribution. This largely mandatory contribution wasn’t introduced as a perfect solution, but as a starting point. As a result of having set down a roadmap, which has seen the SG contribution grow in small increments over the intervening years, as of July 2025, that minimum default contribution level has risen to 12%.
Prior to the introduction of the SG, Australia’s superannuation coverage was significantly lower than it is today. In 1987, superannuation was largely voluntary and primarily available to public servants and employees of large corporations. Superannuation assets were estimated at AUD41.1 billion (R493 billion), covering 32% of private sector employees.
Although for many years after its inception, Australian employees earning at least AUD450 per month (approximately R5 233) were provided SG coverage, that minimum income stipulation was recently removed. Today, with little exception, Australian employees are automatically enrolled in a fund when they commence work and receive SG from their first salary.
A consequence of mandatory enrolment is that the Australian retirement contributions mechanism is markedly different from the South African experience. While in South Africa, retirement fund contributions are often structured as a benefit, particularly in large firms, Australian employers are legally required to contribute 12% of each employee’s pre-tax salary into a superannuation fund.
That 12% contribution is less of a perk than a right, with new positions often advertised with the annual salary plus the super fund contribution rate. Employers might, in fact, offer a higher level of contribution as a way to offer a more competitive package to attract and retain talent.
One element of the Australian system worth mentioning is that funds that receive SG contributions must include, as part of their proposition, a level of default life (death and disability) insurance.
When superannuation was introduced, however, the goal was coverage, not adequacy. Today, more than 90% of the country’s workforce participates in the system, leading to retirement savings in Australia topping AUD4.2 trillion (approximately R46 trillion), equivalent to about 150% of the country’s GDP.
Then came consolidation
Another major industry transformation since the 1990s – when it was predominantly characterised by hundreds of small, often employer-specific funds – was consolidation. Approximately 25 large funds now dominate the pool of retirement assets, with eight mega-funds each managing more than AUD100 billion (approximately R1 162 billion) on behalf of 14.5 million members. It is estimated that several of these mega-funds will each manage over AUD1 trillion by 2040.
A notable outcome of mandatory participation is that even though these funds are defined-contribution schemes, the majority of Australians are expected to retire comfortably. Retired Australians use their super savings in combination with a partial pension provided by the government. By removing individual discretion when it comes to the base contribution, the system ensures disciplined, consistent savings over one’s career.
So, how did it come about?
“The biggest step changes didn’t come from legislation,” says Paul Watson, an experienced Australian superannuation fund executive, now a consultant and non-executive director who also serves as an advisory board member of Allianz Retire+, an Australian provider of retirement products. “They were often led by the industry, with the regulator stepping in only when necessary.” Watson’s former executive career, including two leading Australian institutions, Hostplus and MilitarySuper, has seen him closely involved with the evolution of Australia’s retirement landscape.
Watson says alignment between employers, unions, regulators, and fund managers allowed the system to evolve without constant resets. In fact, the superannuation framework was preceded by an accord signed in the mid-1980s between employers, unions, and the federal government, which introduced a minimum contribution of 3% of payroll; a so-called productivity benefit.
The intention was that rather than receive direct pay rises, workers would have a productivity benefit paid into a relevant super fund, as a form of deferred income for when they retire. These funds were initially aligned to industry-specific sectors and, in the face of high inflation, this agreement — championed by the unions — was seen as a win-win, offering workers long-term financial security without adding immediate pressure to wages.
However, compliance was patchy, so the government stepped in in the 1990s to reform the system, improve employers’ contribution compliance, and set a course for improved adequacy over time. That intervention led to the mandatory superannuation contributions system that is in place today.
With the basis of the SG system being mandatory contributions made for workers, defaults underpinned participation, while fee transparency and benchmarking improved performance over time. Concurrently, funds shifted from being passive custodians to long-term investors in the real economy.
Watson says Australia’s success was not built on any single policy win, but on a well-sequenced series of reforms. First came mandatory contributions. Then came the default fund design. These were followed by fee reform and consolidation. This sequencing was critical to the achievement of today’s outcomes, he suggests. Rather than trying to solve adequacy, governance, and long-term, infrastructure-led patient capital investment all at once, Australia focused on achieving each milestone to support the next, letting the system mature along the way.
Inertia beats intent
A key to success in Australia was that most workers didn’t have to make active decisions. They were automatically enrolled into a superannuation fund through their employer’s payroll system, with the vast majority being placed in a fund’s default investment option.
“In Australia, people didn’t have to opt in. They were just in,” Watson says. “That’s principally what makes the system work as well as it does.”
But auto-enrolment, with little ability to opt out, wasn’t enough. As the system matured, duplication became a major challenge because fund members ended up with multiple accounts if they changed jobs a few times.
“The Australian Taxation Office took on the role of the central administrator of the superannuation system’s data,” Watson explains. While the industry, regulators, and the government came together to address the multiple accounts issue, the tax office began consolidating data and records, matching accounts using tax file numbers – unique to each Australian – as a way of identifying inactive funds. “They started using tax data to match people and pull everything together, leading to the creation of a single, sovereign, overseen dashboard for each Australian.”
In 2022, this administrative backbone enabled the introduction of super “stapling”, a system whereby a person’s first super-fund account follows them from job to job. “The move to stapling was a big step,” Watson says, because it reduced unnecessary fees and confusion. It also improved people’s engagement with their super.
These changes helped build public confidence and gave members more visibility and control. People began to see their contribution not just as a mandatory deduction, but as a meaningful asset they could track and grow throughout their careers.
The bigger prize
What South Africa stands to gain by adopting similar reforms isn’t just improved retirement adequacy. It’s a long-term domestic pool of capital to fund critical national projects and infrastructure, such as roads, airports, and ports, renewable energy, affordable housing, logistics infrastructure, and more.
In Australia, superannuation funds have become major and influential institutional investors. For instance, they own stakes in Transurban toll roads, Sydney Airport, the Port of Melbourne, and energy transition assets across the country and internationally. These investments not only contribute to the growth and development of essential infrastructure but also play a crucial role in the long-term financial returns for superannuation fund members.
Watson points to this shift as one of the most important: “The average Australian now sees significant infrastructure in their day-to-day lives that’s funded by their own and other Australians’ pension funds, whether it’s an airport, a toll road, or a renewable energy asset”.
This kind of investment matters. It provides pension funds with inflation-linked, long-dated assets. It also lowers the cost of infrastructure for the state, attracts private capital, and ensures that workers see a direct connection between the contributions going into their retirement savings and national progress.
It’s not about copying, it’s about learning
South Africa doesn’t need to copy-paste Australia’s model. The economic, demographic, and labour market contexts are different. But the principles – sequencing, alignment, simplicity, and scale – are applicable.
The Two-Pot system was a vital first step. But it must be followed by policies that:
- expand participation across the formal workforce
- introduce phased contribution increases over time
- establish reliable default options for passive savers
- reduce fragmentation in the fund landscape
- create regulatory space for retirement funds to participate in infrastructure investment
None of this will be achieved in one policy cycle, but it can be done over a generation - just as it was in Australia.
A national opportunity, not just a financial one
Retirement reform is often framed as a household issue: how much people save, when they can access it, and what their income will be in retirement. That matters. But it’s only part of the picture.
The bigger opportunity is national. With the right policy and industry choices, South Africa could build one of the continent’s largest sources of long-term domestic capital. Like Australians, South Africans, too, could one day – maybe 35 years from now – look across South Africa’s built environment and see office buildings, schools, hospitals, housing, wind and solar farms, clean water, and other nation-building, productivity, and quality of life enhancing outcomes funded by and supporting the growth of money from citizens’ retirement contributions.
Australia is proving what’s possible when savings are scaled, preserved, and invested with purpose. The question now is which models South Africa can adopt to achieve similar success, despite what could appear to be a mighty high hill to climb.
*This article originally appeared in the 2025 Old Mutual Mindspace Thought Leaders Forum special issue. To read more and subscribe, click here.