By Samukelo Zwane, Product Head, FNB Wealth & Investments
As South Africa navigates the increasingly complex landscape of retirement planning, it is essential to recognise that we don't have to face this challenge alone. There is immense value in learning from global retirement systems that have achieved success. Specific social, cultural, political, and historical circumstances influence retirement systems in different countries, making direct comparisons challenging. While no two countries are identical and no single retirement system is perfect, there are universal truths and lessons we can glean from those nations considered most successful in providing for their retirees. By examining the strategies and practices employed by top-performing countries, South Africa can work towards building a more robust and sustainable retirement framework.
The Mercer CFA Institute Global Pension Index provides a comprehensive evaluation of retirement income systems using three sub-indices: adequacy, sustainability, and integrity. The 2023 findings, which included 47 countries representing over 65% of the world's population, offer valuable insights into the strengths and weaknesses of various retirement systems.
The Netherlands, Iceland, and Denmark topped the rankings with overall index values of 85.0, 83.5, and 81.3, respectively. South Africa placed 38th out of 47, with a total index score of 54, a slight drop from last year's score of 54.7. The sub-category scores were 44.2 for adequacy, 49.1 for sustainability, and 76.6 for integrity.
It's not a particularly heartening picture, especially given the fact that our total score dropped compared to the previous year. However, it clearly defines pathways for improving our country's retirement system. To ensure better outcomes for retirees, the South African retirement industry must focus on several key areas:
Two-Pot System - Helping to improve South Africa's pension system
Introducing a preservation requirement restricting members from withdrawing their pension funds before retirement is crucial. The Two-Pot system, set to be introduced in September 2024, will mandate the preservation of two-thirds of pension savings, increasing the preservation rate from less than 10% to 100% on two-thirds of your retirement savings.
With the recent introduction of the Two Pots system, we hope South Africa's ranking in the Mercer CFA Institute Global Pension Index will improve. As noted, compulsory participation in occupational pension schemes and minimum contributions in retirement savings are also key strategies for enhancing our position further.
Finally, introducing preservation requirement restricting members from withdrawing their pension fund prior to retirement. The introduction of Two Pots system in September 2024 will introduce compulsory preservation of pension funds. Introduction of the Two Pots system, will ensure that two thirds of pension savings are preserved. This will mean see an increase of preservation rate from less than 10% to 100% on two-thirds of your retirement savings.
Hopefully, with the recent introduction of the Two Pots system, the South Africa's ranking in Mercer CFA Institute Global Pension index will improve. As stated in the survey, compulsory participation in occupational pension schemes and minimum contributions in retirement savings will help improving our ranking further.
