South Africa’s retirement industry has made significant strides over the past decade, with better governance, lower costs, improved member communication, compulsory annuitisation and preservation, and the introduction of the two-pot system. Yet only some 6% of South Africans are on track to retire comfortably, underscoring the urgent need to improve outcomes for the majority.
Last week, Michelle Acton, the chief customer officer: Corporate at Old Mutual South Africa, said reform must start “with the end in mind. What are we really trying to achieve?”
In an address at the Institute of Retirement Funds Africa’s annual conference, she identified three key focus areas: coverage, adequacy, and leakage.
Coverage refers to the number of people in the retirement system.
“What we need to look at is how do we widen that net to get more people into the system?” Acton said.
Adequacy concerns whether contributions are sufficient to provide a comfortable retirement.
“We talk about a 70%-to-75% replacement ratio, but is that really the right replacement ratio? Is there really a one-size-fits-all?”
Leakage focuses on preservation – how to keep more money in the system and prevent it from being spent before retirement.
Although the two-pot retirement system moves South Africa in the right direction, Acton said it has not necessarily translated into meaningful gains for the majority because contributions remain too low. The typical employer contribution – about 6% – is not high enough to ensure that members accumulate sufficient retirement savings.
South Africa’s retirement industry manages about R4.8 trillion in assets, according to the Global Pension Assets Study 2025. Retirement fund coverage in the country reaches about 58% of the formal sector, based on an analysis by Andrew Donaldson for the 2021 Pension Lawyers Association conference.
Acton said South Africa can draw valuable lessons from Australia, whose retirement system ranks fourth globally, with more than AU$4 trillion (R45.72 trillion) in assets and 96% coverage.
“And, yes, we can say, well, they have a lot more formal employed; they have a lower unemployment rate. 100%, that’s not to say copy-paste, but there’s a lot we can learn in terms of what they did.”
Compulsory contributions
Acton highlighted how Australia faced similar challenges 35 years ago, when coverage was roughly at the same level as South Africa’s today. Back then, only a few employer funds existed, benefits were inconsistent, and many workers had insufficient retirement savings.
To tackle this, unions and government negotiated a deferred compensation process, redirecting part of pay increases into retirement funds rather than giving them as direct salary increases. Employer contributions were made compulsory through the tax system, laying the foundation for Australia’s superannuation system – what South Africans would call a pension system.
“It became law that if an employer did not contribute money towards the retirement fund, they would get fined. And very, very heavily,” Acton said.
Gradual implementation
Australia also phased in contributions gradually, starting at only 3%. Acton noted that slow, measured implementation made universal participation possible.
“We all discuss how we can’t get everybody else into retirement funds. We can’t afford to, but actually we can, if we ease it in slowly. There’s absolutely no one big bang approach,” she said.
Over the years, contributions increased from 3% to 12% between 1992 and 2025 (first 9% over 10 years), reaching 12% as of 1 July this year. Initially, participation was voluntary for workers under 26 or earning below a certain threshold. Over time, both the minimum age and minimum salary requirements were removed, ensuring even teenagers earning part-time wages joined the system.
“This has created a savings culture,” Acton noted, contrasting it with South Africa, where the savings rate is only 15%, far below the 25% needed to support economic growth and improve retirement outcomes.
A level of transparency that is second to none
Acton pointed to Australia’s strict transparency measures as another key lesson. The country first introduced a scale test, ensuring funds were sufficiently large to operate effectively. This evolved into a performance test, requiring each fund to publish its net benefit to members annually. If a fund fails, it must notify members with an explanation, and repeated failures (two years in a row) prevent it from accepting new members.
“This has created a level of transparency that is second to none – from investments to costs to expenses – and it makes it easy for members to see and compare funds,” Acton said.
Professionalised trustees
Australia also professionalised trustees and strengthened governance. Acton noted that being a trustee for a fund managing billions of dollars is a full-time professional role requiring specialised skills.
Drive for consolidation
Consolidation has been central to Australia’s success. Although the system started with about 4 000 employer, industry, union, and private funds, today fewer than 18 remain, with the top eight controlling 60% to 70% of total assets.
South Africa is following a similar trend. FSCA data shows that standalone employer-run funds dropped from 774 in 2015 to 254 by the end of 2024, while assets in these funds have largely stabilised. Employers increasingly move members into umbrella funds, which now number more than 100, according to a May 2025 Allan Gray report.
Read: Umbrella funds boom – advisers should assess fit, not just fees
Acton said consolidation is key to improving member outcomes and enabling innovation.
“If we really want to put members first and achieve economies of scale, we probably need to continue reducing the number of funds in this space,” she said.
SuperStream: solving multiple pots
With compulsory membership, many Australians began ending up with multiple accounts – as many as five “pots” per person – as they changed jobs and left funds behind.
Acton said the Australian government warned the industry that this could not continue. Members were losing track of accounts, fees were eroding savings, and the government threatened to take over the pension system if the industry did not act.
In response, unions, employers, and industry bodies created SuperStream, an electronic system linking all superannuation funds. Members can view all accounts through the MyGov portal and transfer money between funds with a click. Initially, transfers had to be completed within 90 days; today, administrators have two days – a sharp contrast to South Africa, where moving money between funds can take months.
“And this wasn’t driven by a policy. It wasn’t driven by regulation. It was driven by industry making something happen.”
Member choice
Australia next changed the system to allow employees to choose their own fund, rather than automatically joining their employer’s. This shift gave individual members control and reinforced member-focused design in the system.
“They’ve driven member and choice all the way down to the individual member.”
Only if a member does not make a choice can the employer select a default fund.
Far from perfect, but making progress
After 35 years, Australia’s system covers 96% of workers. Although impressive, Acton said it is not without flaws. Unlike South Africa, where retirees must use at least two-thirds of their retirement benefit to purchase an annuity, Australians can cash out their entire balance.
Other challenges remain, including member apathy, low financial literacy, and limited understanding of retirement planning.
“But because they have the right defaults in place, it has a smaller impact on people’s outcomes,” Acton said.
Boosting the economy
Acton highlighted the broader economic impact of Australia’s retirement system.
Compulsory contributions and reinvestment have created a pool of assets (AU$4 trillion) driving investment in infrastructure and development projects. This capital, and the returns it generates, have strengthened the economy, enabling Australia to punch above its weight on the stock exchange.
“It has done wonders for the country as a whole,” she said.
Charting the path forward
Wrapping up, Acton told delegates that the retirement industry must keep its “true north” in sight: improving member outcomes. She said the sector needs a clear roadmap for the next steps, including some form of automatic involvement and compulsory contributions.
Acton highlighted the need to raise minimum contribution levels and encourage innovation and digitization. She noted the changing world of work, with people holding multiple jobs or moving between formal and informal employment, which calls for a more flexible, member-focused retirement system.
Using South Africa’s banking system as an example, she recalled how, in the United Kingdom, she could not withdraw cash from an ATM if it wasn’t her own bank.
“But in South Africa, you can draw from any bank, right? One of the big innovations we have is Bankserv. We have a central system that joins all our banks, the pipes, that pulls it all together. Now, why don’t we have something like that as an industry, in the retirement fund?”
She emphasised the importance of implementing phased contribution rates, starting low and gradually increasing, and continuing consolidation to build a more efficient and member-centric retirement system.
“We need to start at a minimum contribution rate at a lower level and gradually bring it up so that we don’t have anyone saving in our retirement fund system with less than 10%, for example.”
