Retirement shock for South Africans
Just 10% of members of retirement funds run by South Africa’s biggest standalone administrator are on track to replace three-quarters of their final pensionable salary when they stop work, highlighting an acute savings shortfall in the continent’s largest economy.
According to Alexander Forbes’s Member Insights report, that’s an improvement from 6% in 2021. The average so-called projected replacement ratio for contributing members is only 46%, though that’s up from 40% five years ago.
“Nine out of 10 contributing members are still not on track to replace at least 75% of their final pensionable salary, so there is considerable work to be done,” Vickie Lange, head of solutions enhancement, said in an online briefing on Wednesday.
South Africans have struggled to build adequate savings as years of weak economic growth, high joblessness and rising living costs put pressure on household finances.
The International Monetary Fund expects the economy to expand just 1.1% this year, below the 3.1% global and 4.5% sub-Saharan averages. More than a third of the workforce — or about 8.5 million people — are unemployed.
Financial strain has also prompted workers to tap retirement funds under a system started in September 2024 that allows for early withdrawals from a portion of their savings.
The company has paid out about R17 billion under that arrangement since then, Lange said.
The survey covered more than 1.1 million active contributing member records across more than 310 retirement funds and 2,300 employers.
It considered the impact of preserving savings, sufficient contributions, saving for long enough and managing short-term financial pressure to determine their impact on retirement income.
According to the report, people needed to put 15% of their salary toward retirement savings for 40 years to achieve the replacement ratio of 75%.
In South Africa, the average contribution rate was only 11.2%. Furthermore, while people could retire at 65 years, most were choosing to do so as early as 61.
“The expected replacement ratio is 45% with a normal retirement age of 60, and that jumps to 68% if they stay five years longer to the age of 65,” Lange said.
Data from the Organisation for Economic Co-operation and Development show that the average South African can expect to earn only 17% of their working salary in retirement, compared with 96% in Brazil and 84% in Turkey.
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