South Africans are not saving enough towards their retirement, and not enough South Africans are savings towards their retirement. This double-edged challenge, which was a running theme through the 2024 Old Mutual Thought Leaders Forum is one that corporates, retirement fund administrators, government and industry regulators alike are grappling with.
The twin problem of retirement savings outcomes and retirement funding access is not unique to South Africa. Speaking at the Old Mutual Thought Leaders Forum, Dr David Knox, Senior Partner at Mercer, presented the findings of the 2023 Mercer CFA Institute Global Pension Index, which rated South Africa’s pension system 38th out of 47 pension systems worldwide. South Africa scored high in integrity (76.6), but low in sustainability (49.1) and adequacy (44.2), giving our retirement system a C grade overall (54.0).
But South Africa is not the only country with room for improvement. ‘Pension coverage around the world has to improve,’ said Knox. ‘South Africa has very high coverage of more than 80% of the working-age population being in a retirement fund. Many other countries are nowhere near that.’
Access would be improved by understanding that the workplace has changed. ‘We’re not staying with our employers for 10 or 20 or 30 years anymore,’ Knox said. ‘We’ve also got gig workers and more self-employed people. We need to think about how to include them in our pension system.’
To improve outcomes, Knox suggested reconsidering South Africa’s normal retirement age of 60 to 65 – especially given the longer life expectancies. ‘That doesn't necessarily mean full-time work. It means a gradual transition into retirement rather than a one-off cut-off,’ he said. ‘The concept of everyone retiring at 65 is anachronistic. It's outdated. We need to be more flexible than that.’
Encouraging retirement savings
Chris Axelson, Head of Tax & Financial Sector Policy at National Treasury, pointed to unemployment as a key contributor to the access challenge. ‘You need employment,’ he said. ‘You need people in jobs to be able to save, and they need an income. If you can fix the underlying causes – which is what Treasury is trying to do with structural reforms like the Two-Pot Retirement System – then you can immediately have more savings.’
Olano Makhubela, Divisional Executive: Market Integrity and Decisions Sciences at the Financial Sector Conduct Authority (FSCA), encouraged an enabling environment. ‘Don’t keep telling people, “You are not saving, and therefore you’re a bad person”,’ he said. ‘Approach it differently and say: “How can I make it easy for you to save?” Then it becomes more appealing.’
Humphrey Mkwebu, General Manager: Employee Benefit Solutions at Old Mutual Corporate, agreed, adding that the barriers to entry remain too high for many working South Africans. ‘About 20% to 30% of commercial umbrella fund members may not have access because they have not saved enough to start with,’ he said. ‘In some industry funds that figure goes up to 40% to 50%. We’re trying to give them access, but a big number have just not saved enough for enough time for us to do so.’
Retirement savings in the bigger picture
Speaking for Corporate South Africa, Thembi Mazibuko, Chief People Officer at Retail Giant Pick n Pay, noted that employees’ contributions to pension funds should not be seen in isolation. ‘There is an adage about, “Don’t give a man a fish, but teach him how to fish”,’ she said. ‘We see it as a bit of both. When someone is starving, it seems incredibly privileged to say, “Learn how to fish”. They’re starving now. So it’s about giving people slightly bigger fishes.’
To that end, Mazibuko said, Pick n Pay is deliberate about paying its employees more than its competitors do, while providing maternity support, pension and provident funding to all employees – both full-time and variable. ‘We also provide our staff with subsidised meals, because you can’t serve customers when you’re starving,’ she said. ‘This speaks to a living wage. It speaks to how we put more money in our employees’ pockets so that they can save.’
Axelson spoke to that same reality of debt, unemployment and financially stressed households. ‘A lot of the pushback we get on autoenrollment is that people are really struggling,’ he said. ‘Wages are low, even with minimum wage, and people are in debt. They need these funds to live. What's the point of having retirement savings if you can’t live today? These are the balances that we have to try to create. When we look at other countries that have very good social security systems or safety nets, we don't. In South Africa, our pension system is being used partially as a welfare system.’
When one takes a step back, it’s clear to all industry stakeholders that retirement savings are part of the average South African’s bigger financial picture. And that only increases the urgency around improving retirement savings outcomes.
As Knox said in his presentation: ‘We are dealing with how people are going to live in their retirement, their living standards. We need to do better than we have in the past.’