Most South Africans can only afford to retire at 80, says Sanlam

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The true retirement age in South Africa is closer to 80 rather than the traditionally expected 65, according to Sanlam Corporate. This “retirement age gap” has significant implications for individuals, businesses, and the state.

Sanlam Corporate says employers need to intervene to help South Africans retire earlier and more comfortably. These interventions include aligning contributions with salary increases and making financial advice more accessible to employees.

Sanlam Corporate provides employee benefits, retirement fund solutions, investment management, and insurance products to businesses and institutions.

“Our internal member data indicates that while 65 remains the official retirement age, only 25% of South Africans can afford to retire at this age. Most people will need to work an additional 15 years to achieve financial security in retirement,” says Kanyisa Mkhize, the chief executive of Sanlam Corporate.

The conclusion is based on an analysis of more than 300 000 Sanlam Umbrella Fund members, demographic trends, actuarial data, and the economic factors affecting retirement outcomes.

Based on this data, the average South African is expected to achieve a 25% replacement ratio (the percentage of final salary received as income in retirement) at the traditional retirement age of 65. This replacement ratio is significantly below the industry benchmark of 75% required for a comfortable retirement.

Sanlam Corporate’s internal analysis assumes:

  • Projected investment returns of 9.25% a year, based on a moderately balanced portfolio benchmark.
  • Estimated inflation and salary escalation rates of 5.25% a year.
  • An initial working age of 30 years and a savings term of 35 years, acknowledging that many South Africans face delayed entry into permanent employment.

Implications for individuals, businesses, and the state

Mkhize says the 15-year gap represents a financial challenge and a fundamental shift in how we think about retirement planning and employee benefits. The gap between expectation and reality presents significant challenges for individuals, businesses, and the state.

For individuals, the extended working years have profound implications for personal financial planning and career development. Individuals must consider strategies for maintaining employability well into their seventies while managing their health and developing their skills, so they remain competitive in the job market.

Employers face complex challenges in managing an ageing workforce while balancing transformation objectives. Sanlam Corporate’s member data highlights the tensions between retaining experienced older workers and creating opportunities for younger employees in a country with high youth unemployment and one of the world’s highest youth populations.

With almost 60% of South Africans under 25, according to Stats SA, young South Africans have even more competition for jobs.

The data also highlights critical implications for social policy and welfare systems in South Africa.

The old-age pension means test, designed to assess financial hardship among older citizens, presents a challenging paradox. On the one hand, individuals with preserved retirement funds may be disqualified from accessing state support. On the other hand, these same funds are often inadequate to ensure a comfortable and secure retirement, leaving many caught in a financial grey area. This underscores the urgent need for a more balanced retirement savings and state assistance approach.

Bridging the gap with holistic solutions

Mkhize recommends several interventions that corporates can take to address the retirement age gap. These include:

Automatic contribution increases

“Implementing automatically escalating contribution rates that align with annual salary increases represents a powerful tool for improving retirement outcomes,” Mkhize says.

When contribution increases coincide with salary adjustments, employees are less likely to feel the impact on their take-home pay. This approach addresses one of the crucial challenges in retirement saving: many members never revise their contribution rates over their working life. By automating these increases, members can boost their savings without facing difficult decisions about reducing their current standard of living.

Enhanced employer-matching contributions

Expanding and optimising employer-matching contributions can significantly accelerate retirement savings accumulation. When employers increase their matching thresholds or introduce more generous matching ratios, employees are incentivised to save more while effectively receiving additional compensation through retirement contributions.

This approach aligns the interests of employers and employees while leveraging tax advantages available through retirement savings vehicles.

Access to financial advice, planning tools, and financial education

Making professional financial advice more readily available to all employees, coupled with a solid foundation of financial education, can help employees to optimise their investment choices, adjust contributions appropriately, and maintain a long-term perspective on their retirement planning.

This includes the use of digital planning tools to help employees understand their retirement trajectory and make informed decisions.

Mkhize says a co-ordinated effort is required from all stakeholders to help South Africans retire with dignity, not decades past their prime.

“This is not just about individual savings behaviour. It’s about creating a sustainable system that works for all South Africans across generations. While the 80-year retirement age represents a challenging reality, it also presents an opportunity for innovation in our approach to work, savings, and retirement planning.”

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