While the two-pot retirement system remains a dominant topic currently shaping South Africa’s retirement industry, the sector is also focusing on broader reforms, innovative investment strategies, and the integration of technology to better serve members.
The implementation of the two-pot retirement system has been a major test of the retirement industry’s resilience. While some may feel “two-potted out,” the system is proving its value in encouraging long-term savings. Surprisingly, early data indicates that only around 40% of members chose to make a withdrawal, meaning the majority – 60% – did not. This suggests a growing inclination toward preservation.
Even for those who have made withdrawals, the system continues to offer a better long-term outcome than the previous model where people cashed out their entire retirement savings when changing jobs. The two-pot system is essentially forcing a level of preservation while still providing some much-needed liquidity. This new-found stability is creating a larger pool of preserved assets, opening the door for new investment opportunities.
The success of the two-pot system serves as a great example of what can be achieved when all stakeholders work together to find common ground.
The power of impact investing and infrastructure
Infrastructure development and impact investing is playing an increasingly larger role in the retirement fund industry, moving beyond theoretical concepts, with many examples of projects that successfully balance social impact with generating solid returns for members.
These long-term, high-return assets are a natural fit for the retirement industry, especially with the increased stability brought about by the two-pot system. As the retirement fund industry grows in scale, it gains the ability to invest in large-scale, long-term infrastructure projects, which benefit both members and the country’s development.
Global and local retirement reform
South Africa’s retirement fund industry is often seen as a global leader in many aspects. However, although it is ahead of many international counterparts in its maturity and sophistication, there remains work to be done. A collective effort from government, regulators, employers, and service providers is essential to refine existing policies and introduce new reforms. The success of the two-pot system serves as a great example of what can be achieved when all stakeholders work together to find common ground.
The role of technology and AI
While advanced AI tools like generative AI hold great promise, the real-world impact of simpler technologies like WhatsApp has been significant. As an example, the sheer volume of member engagement through basic digital channels such as WhatsApp during the two-pot implementation was unprecedented. This shows that people of all ages and demographics are comfortable with digital communication, not just younger generations.
This digital comfort presents a huge opportunity to streamline processes. Submitting a claim via WhatsApp, for example, is far more efficient than traditional manual forms. Technology is also being used to improve internal processes, with AI assisting in tasks like generating meeting minutes and summarising complex documents for trustees and advisory bodies.
The ultimate goal is to use technology to create a smoother, more comfortable experience for members, ensuring that the human element remains focused on providing support and guidance when it matters most.
However, the industry acknowledges that AI will not replace the human element. While technology can provide access to information and simplify transactions, human oversight and empathy remain crucial. The human touch is especially important when dealing with the significant life events tied to retirement, a time of potential vulnerability and anxiety. The ultimate goal is to use technology to create a smoother, more comfortable experience for members, ensuring that the human element remains focused on providing support and guidance when it matters most.
Looking ahead
South Africa’s retirement industry, including the regulations governing it, are in a state of continuous evolution. Changes being made today will not fully impact member outcomes for decades. The two-pot system, while still in its early stages, is already setting a new precedent for member engagement. For the first time, a large portion of the population is actively interacting with their retirement savings, even if it’s to access a portion of their funds. This increased awareness is a massive win for financial literacy and will likely lead to better long-term decisions.
An encouraging take-out from the recent Institute of Retirement Funds Africa (IRFA) Conference is that the industry is united in its commitment to continue building a robust, resilient system that combines strategic policy, innovative investment, and smart technology to provide a secure future for all South Africans.
Henré Prinsloo
Head: Employee Benefits and Actuarial Consulting
Henré is a seasoned actuary with over 18 years of experience predominantly in the employee benefits consulting space. In his current role as the head of employee benefits and actuarial consulting at Momentum Consultants and Actuaries, Henré oversees the team that is responsible for consulting to boards of trustees and employers on all matters EB.
With deep technical expertise and a passion for impactful solutions, Henré has consulted to a wide range of clients across Africa, including high-profile funds and companies, helping them to use data to solve their diverse challenges related to the people they employ. His leadership and insight continue to shape the landscape of employee benefits and actuarial consulting on the continent, as he aims to help build MCA into the number 1, digitally led employee benefits consultancy in South Africa.
