The Two Pot System marks a transformative step, potentially enabling South Africans to accumulate two to three times more in retirement savings over their lifetimes. But the question now is: what comes next?
With South Africa ranked a dismal 33rd out of 44 countries on the Mercer Pensions Fund Index, auto-enrolment could be the game-changer the country desperately needs to transform its struggling retirement savings landscape, as seen in other nations.
The real challenge we face is simply that many South Africans earning an income, are simply not saving for retirement. According to David Knox, lead author of the Mercer CFA Institute Global Pension Report, South Africa has one of the lowest rates of retirement savings coverage globally. Speaking at the Old Mutual Corporate Thought Leadership Forum in August, Knox stated, “87% of the working-age population in the world’s top pension systems save towards retirement. In South Africa, the figure is likely closer to 25%.”
Policymakers are not ignoring this issue. In 2021, National Treasury confirmed its intention to tackle this gap as the next step following the Two Pot framework. One proposed solution is auto-enrolment—a mechanism that automatically enrols employees in a retirement fund unless they actively opt out. This approach, which has been successful in countries like the UK and New Zealand, has the potential to significantly increase participation rates.
Chris Axelson, representing National Treasury at the Old Mutual Corporate Thought Leadership Forum, acknowledged that while the issue appears straightforward, the solution is anything but simple. He explained that while auto-enrolment is being explored, much of the resistance stems from the significant financial struggles many people face “For some the question is, what’s the point of having retirement reserves if you can’t live today?” he said.
Designing the Path Forward
Axelson’s comments underscore the tension between addressing immediate financial needs and securing long-term savings goals—a balance that any future reforms must carefully consider. The implementation of auto-enrolment in South Africa still needs to be mapped out.
A likely approach would involve creating a “minimum benefit package” for employers and phasing the framework in over time. Larger employers would likely adopt the system first, with smaller businesses gradually brought on board. Knox advocates for incremental implementation to ease the transition. “Be clever in terms of how you phase it in… start with low contribution rates and then introduce auto-escalation, so over time the contribution goes up,” he said.
This phased approach, while prudent, highlights the complexity of reforming a framework to align with South Africa’s diverse socio-economic realities. Experts estimate that a successful rollout of auto-enrolment could take five to ten years to implement sustainably. However, the long-term benefits make it a goal worth pursuing.
Beyond improving retirement outcomes for individuals, auto-enrolment offers systemic advantages. Larger member bases and simplified structures could reduce administrative costs, making retirement funds more accessible to smaller employers. Speaking at the Old Mutual Corporate Thought Leadership Forum, Olano Makhubela of the FSCA highlighted this point: “You can get economies of scale, lower the costs, [and] get better outcomes for members.” These improvements would broaden inclusivity and encourage participation across the workforce.
Collaboration will be key
Makhubela also emphasised the role of collaboration in implementing reform, highlighting the Two Pot System as a strong example of how quickly progress can be achieved when stakeholders work together. He noted that it has been encouraging to see the Two Pot System come into effect, emphasising that its implementation required significant patience. “The unions had certain expectations, the government had certain expectations, and the regulator had to find the right balance,” he said.
The success of the Two Pot framework demonstrates what can be done through partnership. While challenges remain, addressing the participation gap through mechanisms like auto-enrolment is the next logical step. With thoughtful design, phased implementation, and a commitment to partnership, South Africa can create a retirement reform framework that supports its people more effectively. As Knox aptly said, “We need to do better than we have in the past.” With the right steps, South Africa can meet this challenge and lay the foundation for a more secure retirement for more people.
Discover more insights and expert perspectives from the Old Mutual Corporate Thought Leadership Forum and special issue publication by visiting our website: Insights from the Forum - Old Mutual Thought Leaders Forum