Over the past two decades, South Africa’s retirement fund industry has become more regulated, more complex, and more demanding to administer.
The introduction of default regulations, stronger governance requirements, enhanced tax reporting, preservation reforms, and, most recently, the two-pot retirement system have all added new layers of administration.
Yet during the same period, one of the industry’s biggest costs moved in the opposite direction.
According to the latest Sanlam Benchmark 2026 Insights Report, the average administration fee for umbrella funds has declined from 1.63% of payroll in 2006 to just 0.25% in 2026. Standalone funds have seen a similar decline, from 1.2% to 0.45%.
Every rand paid in administration fees is a rand that remains invested on behalf of members. Over a working lifetime, lower costs leave more of each contribution available to benefit from long-term investment growth.
Anna Siwiak (pictured), the head of product development at Sanlam Umbrella Solutions, described the decline as one of the industry’s biggest achievements over the past two decades.
“This substantial reduction in administration costs must be one of the most significant changes of the past two decades,” she said.
A changing industry
Administration costs fell while the structure of the retirement fund industry changed fundamentally.
Since 2006, the number of registered retirement funds has fallen from about 13 000 to just over 4 000, while active funds have declined to 837 as consolidation gathered pace. Over the same period, assets under management almost quadrupled, increasing from about R1.5 trillion to R5.84 trillion.
Much of that consolidation has been driven by the growth of umbrella funds.
In 2006, Sanlam’s Benchmark survey included 160 standalone funds and only 19 umbrella funds. This year’s survey included 76 standalone funds and 130 umbrella funds. Three of the standalone funds that participated in last year’s survey returned this year as umbrella fund participants, illustrating how the market continues to consolidate.
As smaller standalone funds have migrated into umbrella arrangements, administrators have been able to spread technology, governance, and compliance costs across much larger membership bases. The Benchmark report identifies those economies of scale as one of the factors behind the steady decline in administration costs.
Looking back at Benchmark surveys dating back to 2006, Siwiak noted that many of the reforms retirement funds anticipated at the time have since become reality, including stronger trustee accountability, the alignment of pension and provident funds, and compulsory preservation through the two-pot retirement system.
“What this reveals is that the industry’s revolution isn’t reactive or random,” she said. “Rather it has followed a consistent trajectory towards improved member protection and system integrity.”
Twenty years ago, many retirement funds expected growing regulation to increase administration costs. Instead, regulation became more demanding while administration became significantly cheaper.
Regulation has become more demanding
Lower administration costs have not come from a simpler operating environment.
Retirement fund administrators have had to implement successive waves of legislative and regulatory reform, including enhanced tax reporting, stronger governance requirements, preservation reforms, and, more recently, the two-pot retirement system.
Each change has required investment in administration platforms, technology, testing, staff training, and member communication.
“Reducing costs is not straightforward,” Siwiak said. “Every regulatory change requires investments in our administration platforms, testing, staff training, member education, and all of this at a substantial cost.
“The result is a system that is more efficient, yes, but it’s also a lot more complicated.”
The Benchmark report suggests lower fees have been driven not only by operational efficiencies but also by stronger regulatory oversight and increased competition. Siwiak pointed to the Financial Sector Conduct Authority’s emphasis on ensuring administration fees are fair, transparent, and justifiable, while retirement funds are reviewing their administration providers more frequently than in the past. Together, those developments have increased pressure on administrators to reduce costs.
Lower fees, better retirement outcomes
Contribution rates in umbrella funds have declined over the past decade, falling from an average of 16.61% in 2016 to 14.09% in 2026. According to Siwiak, affordability pressures following Covid-19 contributed to many employers reducing contribution rates, and those levels have yet to recover.
Ordinarily, lower contribution rates would result in lower retirement savings.
Instead, the Benchmark research found members are, on average, saving more towards retirement than they were two decades ago.
Siwiak attributed much of that improvement to lower administrative costs and lower risk-benefit costs.
“Twenty years later, despite the lower contribution rates, members are actually saving more towards retirement on average, and that’s in big part due to the reduction in the risk benefit fees and the administration costs,” she said.
The report illustrates the point using a typical umbrella fund. Although the employer contribution declined from 10.2% of payroll in 2006 to 8% in 2026, administration costs fell from 1.63% to 0.25%. As a result, the proportion of contributions ultimately allocated to retirement savings increased from 10.82% to 11.38%.
The numbers suggest that contribution rates tell only part of the story. The cost of administering a retirement fund can have just as much influence on how much members ultimately accumulate for retirement.
Two-pot may create a new cost challenge
Much of the debate around the two-pot retirement system has focused on savings withdrawals.
Siwiak believes another consequence deserves closer attention.
Mandatory preservation means members increasingly leave behind preserved retirement pots when changing jobs. Within the Sanlam Umbrella Fund, the number of members holding only a preserved retirement pot increased from about 14 000 at the end of May 2025 to about 47 000. About half of those members have retirement savings of less than R5 000.
“Members going from job to job leave their little retirement pots at different providers as they move through their working career. This fragmentation opens up some risks,” she said.
Each preserved pot remains a separate retirement fund account, carrying its own administration, governance and regulatory obligations.
“Each one of those pots will incur costs or fees. The smaller pots could actually be eroded by fees in time.”
Siwiak noted that every preserved pot also remains subject to statutory requirements, including the provisions of sections 37C and 37D of the Pension Funds Act when benefits become payable. As preserved pots accumulate across the industry, so too does the administrative workload associated with them.
The issue is not only one of cost.
Members who change employers several times during their careers may eventually have retirement savings spread across multiple providers. Keeping track of those benefits, updating beneficiary nominations, and consolidating retirement savings where appropriate could become increasingly important.
Advice becomes more valuable
Siwiak believes the growing number of preserved retirement pots will also increase the importance of financial advice.
Helping members decide whether to access their savings pot is only part of the conversation. Members also need to understand what happens to preserved retirement savings when they change jobs, how to keep track of retirement benefits held with different providers, and when it makes sense to consolidate retirement savings.
That advice is likely to become more valuable if preserved retirement pots continue to multiply across the industry.
The next challenge
The Benchmark report suggests the retirement fund industry has spent much of the past two decades improving the way retirement funds are governed, administered, and regulated.
The next challenge may be maintaining those gains.
“The past two decades have been characterised by significant structural and regulatory evolution,” Siwiak said. “The focus needs to now shift from retirement reform transformations to practical realities of delivering improved member outcomes.”
The industry has demonstrated that administration costs can fall even as regulation becomes more demanding.
Whether that trend continues may depend on how retirement funds manage the next phase of reform.
If preserved retirement pots continue to multiply as members change jobs, administrators will need to manage increasing complexity without reversing one of the industry’s quietest successes: ensuring that more of every retirement contribution remains invested for the member who earned it.
