Retirement shock for South Africa

South Africa is facing a retirement crisis, with the latest 10X Retirement Reality Report revealing that only 6% of South Africans are on track to retire comfortably. 

10X Investments (10X) is an authorised Financial Services Provider, a licensed Retirement Fund Administrator and Investment Manager.

According to the firm, to be considered financially prepared for retirement, a person should be able to replace around 75% of their final salary through their savings and investments.

The benchmark used by 10X Investments suggests that by age 63, a person would need around R7.5 million saved to earn roughly R25,000 per month before tax, assuming a safe annual drawdown of 4%. 

Andre Tuck, Senior Investment Consultant at 10X, noted that the shortfall in retirement savings is driven by people not saving enough during their working lives and starting too late. 

As a result, millions of South Africans will have to continue working well past traditional retirement age.

Due to the country’s poor savings rate, Kanyisa Mkhize, CEO of Sanlam Corporate, added that most working South Africans will have no choice but to work until they’re 80.

She highlighted the gap between retirement expectations and reality. “The consumer portion of a Sanlam study showed that respondents expected to retire comfortably at 60,” she said. 

“However, a separate piece of work by Sanlam Corporate showed that South Africans, on average, may need to work a full two decades past the normal retirement age to maintain their lifestyle.”

Mkhize added that a large part of the problem is that people are not seeking financial advice soon enough. 

“Our 2025 Benchmark study found that almost half of respondents use Google for financial information and just 22% consult a financial advisor,” she said.  

“Retirement outcomes are unlikely to improve if people aren’t seeking professional guidance and don’t fully understand their realistic retirement age.”

Two-Pot Retirement System compounding the problem

Adding further pressure is the newly implemented Two-Pot Retirement System, which took effect on 1 September 2024. 

The system allows South Africans to withdraw a portion of their retirement savings early, intended as a short-term relief mechanism. 

However, 36% of survey respondents have already accessed this option, either in part or in full.

Mkhize warned that while these withdrawals may offer short-term relief, they significantly reduce the likelihood of a confident retirement. 

Nearly half of the people who changed jobs cashed out their retirement savings completely, and 26% said they would only start seeking retirement advice within the last five years before retirement. 

“These findings from retirement fund members point to a system under pressure,” she said.

The early withdrawal trend also drew attention from the South African Revenue Service (SARS). 

Commissioner Edward Kieswetter revealed that SARS expects to collect between R11 billion and R16 billion in taxes from two-pot withdrawals, far exceeding the original estimate of R5 billion to R6 billion.

At an Allan Gray webinar this year, Kieswetter said about 2.4 million fund members had already withdrawn over R43 billion, accounting for nearly 40% of the 6.5 million South Africans who contribute to retirement funds. 

While this spike in withdrawals has temporarily boosted tax revenue and VAT through increased consumer spending, Kieswetter warned of longer-term dangers. 

“This represents a troubling depletion of South Africa’s national savings pool,” he said, adding that this could have serious consequences for future financial security.

To illustrate the impact of early withdrawals, Leone Hitge, Investment Marketing Manager at Ninety One, compared two hypothetical investors contributing R100,000 annually to a retirement annuity over 20 years, with an assumed return of CPI plus 5%. 

Investor A withdrew their available savings each year and ended up with R2.26 million. Investor B, who left the savings untouched, accumulated R3.39 million, more than R1 million higher.

“In a nutshell, withdrawing all the funds from your savings pot every year can reduce your total retirement portfolio by approximately a third compared to leaving it untouched,” Hitge explained. 

She also reminded investors that two-pot withdrawals have an added tax liability, further eating into their long-term savings.