South Africa’s economic and social challenges are mounting, and the statistics paint a worrying scenario. The country’s growth has underperformed during the past decade: GDP per capita was lower in 2019 than in 2008.

According to Statistics SA, unemployment is at 32.1%, with youth unemployment at 44.3%. About 19 million South Africans rely on social grants, minuscule though they might be. Meanwhile, there’s pressure on the government to spend more on health, infrastructure and higher education.

But there’s a boost to the economy that many might not have considered, says Old Mutual Corporate Consultants’ Keri-lee Edmond: “Retirement savings have the potential to contribute positively to the South African economy, which is crucial to combat our macro-economic concerns.”

Edmond outlines four essential benefits of improved retirement savings.

1. Savings and capital formation

“Long-term retirement savings contribute to capital asset formation for the advancement of the country’s infrastructure, development of initiatives and expansion of economic earnings capacity,” says Edmond.

In short, when people put money aside for retirement, they aren’t spending it all immediately, which increases the overall amount of funds available for investment in the country and its companies. With more money to invest, companies can buy new equipment, hire more people and develop innovative ideas, creating more jobs and boosting the economy.

“This sets up a virtuous cycle,” says Edmond. “As the economy grows, more people get jobs and can afford to save for retirement, which creates an even bigger pool of money to invest, leading to even more growth.”

2. Financial market growth

“Retirement savings are typically managed and invested in local and offshore financial markets, according to South African regulation,” says Edmond. “As retirement savings grow, so do the size and sophistication of the country’s financial markets, and a robust financial sector enhances the efficiency and competitiveness of the overall economy.”

3. Reduced dependency on social security

Adequate retirement savings also reduce the dependency of retirees on the SASSA old age grant, says Edmond. “This means that fewer elderly citizens require government assistance – a relief that allows more resources for other social and economic needs, such as education, healthcare and poverty alleviation.”

This becomes an even more critical point, given that Stats SA says the ageing population in South Africa is steadily increasing.

While longer lifespans and better health are positive trends, they also present new challenges. For example, age-related illnesses like high blood pressure, diabetes and asthma require better and longer access to healthcare, which puts pressure on the country’s healthcare system.

These trends will also have an impact on social and environmental planning, as the government will need to consider the housing and services required for older individuals, as well as their effect on the economy and health and transportation systems – all of which will take money from the fiscus if dependence on the old age grant increases.

4. Improved savings culture and increased household wealth

Encouraging long-term retirement savings fosters a culture of saving and financial responsibility. “This culture can extend beyond retirement planning and result in prudent financial behaviour among the population, which benefits the broader economy,” says Edmond.

“All retirement savings, even the withdrawn funds, can benefit economic activity through investment in intangible assets such as enhancing family lifestyle, pursuing education or even boosting consumer spending.”

Improving retirement outcomes in the current climate

While the goal is to improve retirement outcomes to a level that could sustain a desired standard of living and combat the country’s macro-economic concerns, the vast majority of South Africans are grappling with pressing socio-economic challenges like youth unemployment, debt, poverty and inequality.

The situation is complex, and the need for take-home cash and savings to fund the livelihoods of families can’t be ignored, says Edmond.

“The low levels of retirement (and general) savings in this country are certainly a large, multi-faceted problem, calling for innovative solutions – solutions that will require collaboration and commitment from various stakeholders,” warns Edmond.

In South Africa, the occupational fund remains one of the primary contributors to retirement savings, wherein employees and employers contribute, forming a substantial pool of life-long assets.

“The purpose of these assets is to support an employee’s later years of life, and in practice, these funds continue to make a significant difference in the quality of life of individuals leaving work behind,” says Edmond.

“This significantly valuable vehicle is often overlooked by employees because it is not widely understood or valued for the full benefit it provides. For the sake of both individuals and the wider South African economy, we need to encourage employees to plan wisely for their post-work years.”

Retirement savings are often viewed solely as a personal financial tool. However, their potential to help South Africa’s economic growth is undeniable. Promoting a culture of saving and strategic investment of sufficient retirement funds can unlock a powerful engine for the country’s economic wellbeing and pave the way for a more prosperous future for all South Africans.