Retirement perceptions in South Africa

In South Africa, the second pillar – in which recipients and employers pay into a privately-funded system that allows for lump sum withdrawals – has become well-established and achieved substantial coverage despite being a voluntary system. The government is now considering introducing a workplace retirement plan mandate, although these details remain at an early stage.

The current system is undergoing a reform that will see the introduction of a ‘two-pot’ model. This will allow South Africans to access cash for emergencies and other short-term needs, while keeping the majority of their savings for retirement. The current system allows regular cashing out when savers change jobs, which is reflected in our findings showing a relatively high number of people withdrawing cash before retirement. The policy goal for the new ‘two-pot’ system is to introduce a shift that will result in more funds preserved for retirement.

There is a clear service gap in retirement finance advice

Financial advisers are the main source of information, with other sources falling short of expectations

Understanding of retirement finance options in South Africa is generally very strong, with almost nine out of ten (87%) South African respondents feeling they have a good understanding of their options. This is to be expected, given that the current legislation in South Africa is fairly clear-cut. In most instances, it dictates that if you have a pension you can take a certain amount as a lump sum when you retire and the rest as monthly payments. That said, 18% of those closest to retirement (55+) report not understanding their options. It may be that on nearing retirement, people become more aware of the gaps in their knowledge.

A financial adviser is the clear go-to source of retirement financial advice, with 79% of respondents expecting to turn to one. Retirement plan providers are a distant second, with just 44% of respondents expecting to turn to them for advice. Older South African respondents are slightly more likely than their younger counterparts to look to a retirement plan provider (56% of those aged 55+ compared to 41% of those aged 18-34), or to a fintech service (28% compared to 17%).

Financial advisers are also considered the most useful source of information in practice, with 50% saying they have received useful guidance from one. Retirement plan providers sit in third place, at 15%. On the whole, when it comes to providing retirement finance information, Retirement plan providers, online digital advisers and employers are not currently meeting South Africans’ needs.

‘Retirement’ is a fluid concept

Most think of retirement as a gradual process

Around half (52%) of respondents in South Africa see retirement as an event with several stages, and just 26% see it as a one-off event. Many South Africans may work for longer and perhaps even never retire. 

As is found in other regions, the view of retirement as a one-off event is more common among younger people (18-34), 32% of whom see retirement as a one-off change. 

Healthcare and living costs drive retirement finance fears

Meeting basic costs is a worry when thinking about retirement

A significant number of South African respondents (61%) predict that their monthly costs will increase in retirement. This expectation is more common among younger people (63% of 18-34 year olds) than older people (56% of those aged 55+).

The biggest financial concerns for South African respondents during retirement are being able to afford both healthcare costs (68%) and day-to-day living costs (68%), with the costs associated with supporting family members a significant worry, too (55%). Women are particularly concerned about being able to afford day-to-day living costs compared to men (73% of women are concerned, compared to 60% of men), and also have heightened concerns about healthcare costs (70% of women are concerned compared to 64% of men).

When it comes to costs associated with supporting family members, younger people are more concerned than their older counterparts (55% of 18-34 year olds are concerned, compared to 38% of those aged 55+).

South African respondents are heavily dependent on personal savings to fund their retirement. Just 21% expect to rely on the government funded Older Person’s Grant and 49% on a private pension, while 61% will rely on personal savings. Younger people aged 18-34 are more inclined to say they will use their personal savings (63% compared to 44% of those aged 55+), and are less likely to say they will rely on an Older Person’s Grant (19% compared to 32% of those aged 55+).

People want flexibility and control

Respondents in South Africa are looking for autonomy in managing their retirement finances

Flexibility is crucial. When looking for a retirement plan, the most important feature is a wide range of investment options – nearly two thirds of respondents (62%) say this is important.

Respondents in South Africa also want to have control. Their other top priorities are the ability to change their income amount if needed and to do so at the touch of a button. Almost all respondents (97%) consider it important that they can manage their retirement funds online.

A blended approach to financial management is the most preferred option in South Africa, with two thirds (65%) saying they want to manage their retirement finances themselves but with assistance. A small minority – just 6% – would like their finances to be managed entirely by someone else.

Clear, simple communication from retirement plan providers is particularly important for older respondents, with almost three quarters (72%) of respondents aged 55+ listing it as important.