South Africa’s retirement income system remains robust in its regulatory foundations but underpowered in its outcomes, according to the Mercer CFA Institute Global Pension Index 2025.
Although the country’s governance framework and financial regulation earn international praise, its pension outcomes remain limited by low savings, patchy coverage, and persistent economic fragility, the report says.
South Africa achieved an overall C grade, with an index score of 51 out of 100 – a modest improvement on last year but still well below the global average of 64.5. Mercer characterises a C-grade system as one that “has some good features but also major risks and shortcomings that should be addressed; without these improvements, its efficacy and long-term sustainability can be questioned”.
The 2025 Global Pension Index assessed 52 retirement income systems, representing about 65% of the world’s population, against three core dimensions: adequacy (weighting of 40%), sustainability (35%), and integrity (25%).
The Netherlands (85.4), Iceland (84.0), Denmark (82.3), Singapore (80.8), and Israel (80.3) retained the world’s only A grades – combining generous benefits with solid funding and high public trust. At the other end of the spectrum, India (43.8) and the Philippines (46.2) remain in the D range, reflecting low coverage and weak fiscal capacity.
Mercer reports that eight countries improved their scores this year and no systems were downgraded. Globally, retirement assets in OECD countries rose to US$63 trillion in 2024, buoyed by equity gains and higher contributions. Yet the report warns that longevity risk, labour market shifts, and rising public debt are testing even the most advanced systems.
SA: sound governance, limited reach
South Africa’s performance reflects the structural divide between institutional strength and socio-economic weakness.
Its integrity score of 75.7 ranks among the best in the developing world – evidence of a mature regulatory regime and long-established fiduciary oversight within retirement funds. The global average integrity score is 74.7.
However, this strength is offset by weak adequacy (38.0 compared with a global average of 66.1) and below-average sustainability (48.2 compared with 55.3). Mercer attributes these to the system’s limited coverage, low preservation rates, and restricted savings capacity across large sections of the population.
“The system works well for those within it,” Mercer observes, “but leaves many citizens without sufficient coverage or income replacement in retirement.”
South Africa’s pension adequacy is constrained by structural inequalities and a dual labour market. Millions of informal and self-employed workers remain outside formal retirement arrangements. The state old-age grant, although vital for poverty relief, is “modest and means-tested”, not designed to replace pre-retirement income.
Low household savings rates, frequent withdrawals on job change, and wide gender gaps further erode adequacy. Without reform, most South Africans will continue to rely primarily on public transfers rather than accumulated savings.
A relatively young population supports long-term sustainability, but weak economic growth, high unemployment, and limited contribution inflows undermine it.
Mercer highlights poor preservation, early withdrawals, and low labour-force participation among older workers as key vulnerabilities.
The report suggests incremental measures such as raising the retirement age in line with life expectancy, strengthening preservation, and boosting contribution rates.
South Africa’s pension sector is professionally managed and well regulated. Fiduciary standards, audit practices, and disclosure requirements align closely with global norms. This gives the system a credibility advantage – but one that risks being squandered unless adequacy and sustainability catch up.
Within southern Africa, South Africa’s system trails its neighbours: Botswana scored 59.8, and Namibia, a new entrant, scored 59.1, both earning C grades but outperforming South Africa on adequacy and participation.
Growing pressure on funds to finance policy goals
Each year, Mercer and the CFA Institute dedicate a chapter of the report to a global policy issue. In 2025, the focus is “Balancing government influence on private pension fund investments”.
Mercer and the CFA Institute note that as the scale of private pension assets has grown globally, so too has the temptation for governments to use those savings as an instrument of national policy.
They observe that “governments influence, and in many instances restrict, private pension funds’ investments through the design of prudential frameworks and broader economic policy objectives”.
However, Mercer cautions that this influence is increasingly expanding beyond prudential regulation into developmental steering, with some governments seeking to direct capital flows towards infrastructure, housing, or climate objectives.
The authors describe this as a “delicate balancing act”, writing: “The primary purpose of a pension fund is to provide retirement income to the fund’s participants and their dependants. However, as national priorities evolve, there is growing pressure on these funds to contribute to broader economic and social objectives.”
Mercer says that although this broader contribution can be valuable, fiduciary principles must remain paramount. Retirement funds, it says, are not sovereign wealth funds, and their investment decisions must continue to be guided by risk-adjusted returns in the best interests of members, not by policy mandates.
Eight principles for balance
The report proposes a framework of eight guiding principles to help governments and funds navigate this evolving landscape:
- Retirement first. The overriding objective must remain to provide retirement income to members and their dependants.
- Fiduciary integrity. Trustees must act solely in the interests of beneficiaries; governments should not compromise this duty.
- Robust governance. Investment policies must be transparent, accountable, and well documented, with appropriate oversight.
- Full market access. Funds should be free to invest across the full spectrum of asset classes and geographies consistent with their mandates.
- Policy incentives, not mandates. Governments can encourage investment in priority areas through incentives or co-investment mechanisms but should refrain from requiring a floor level of investment in any asset class.
- Collaborative scale. Where suitable, smaller funds can co-invest or pool resources to achieve efficient exposure to infrastructure or strategic projects.
- Transparency, not constraints. Public disclosure and consistent reporting are preferable to prescriptive limits or forced allocations.
- Macro awareness. Policymakers should understand how retirement system assets, liabilities, and regulations interact with broader fiscal and monetary conditions.
Mercer says that adherence to these principles can enable pension systems to support national development goals without undermining member protection or market integrity.
These principles are relevance to South Africa, where debate continues over how to mobilise retirement savings for infrastructure, renewable energy, and inclusive growth. Under Regulation 28 of the Pension Funds Act, fund managers already face limits on offshore exposure and asset class allocations – measures designed to protect members but also to channel capital domestically.
Recent policy discussions have revived proposals for greater “impact investment” by retirement funds. Mercer’s framework implicitly cautions against coercive measures, arguing that the best outcomes arise when government objectives and fiduciary duties are aligned through incentives and collaboration, not mandates.
