Advice critical as two-pot preservation beds down
The domestic retirement fund landscape has gone through a significant metamorphosis over the past three decades, with the notable shifts being the move from a defined benefit to defined contribution structure; from standalone to umbrella funds; and towards improved preservation. FAnews attended the 2026 Sanlam Benchmark launch to find out more about decisions that shape our readers’ financial futures.
The umbrella funds have it
Anna Siwiak, Head: Product Development at Sanlam Umbrella Solutions, took the audience on a journey spanning two decades of change in the South African retirement fund industry, drawing heavily from the brand’s 2006, 2016 and 2026 Benchmarks to do so. The first comparison confirmed the fund structure trend mentioned in the opening paragraph. In 2006, 160 standalone funds and 19 umbrella fund employers took part; by 2026, the survey covered 76 standalone funds and 130 umbrella fund participants.
In 2006, there were 13 132 registered funds, with just over 4 057 of them being active; today, the number of funds has decreased to just over 4 100 registered funds, with only 837 active funds. The consolidation ‘push’ was started by the then Financial Services Board and carried forward by the Financial Sector Conduct Authority (FSCA) with the overarching aim of achieving improved oversight over fewer, better-governed funds. Over the same 20 years, estimated total assets across retirement funds have increased four-fold, from R1.5 trillion to R5.84 trillion.
The presenter tested survey participants’ 2006 expectations against subsequent outcomes. “The main points they anticipated was an increase in trustee accountability; the alignment of pension and provident funds; and the introduction of stronger preservation mechanisms,” she said. Two decades later, and one could put a checkbox alongside each. Reforms to the Pension Funds Act aligned the structure and tax treatment of pension and provident funds, while compulsory preservation was introduced through National Treasury’s two-pot solution.
The retirement age sweet spot
The Benchmark survey offers some useful insights for employee benefit consultants and financial advisers, notably around retirement fund contribution and retirement age trends. In 2006, there was still a small discrepancy between the retirement age of male and female employees, with survey participants showing age 62 for men, and 61 for women. A decade later, the man-woman disparity had disappeared, and retirement ages had increased slightly to age 63 in standalone funds and 64 in umbrella structures. The age is unchanged in the latest survey.
The 2026 survey shows that around 60% of consumers would like the option to continue working beyond their employer’s normal retirement age. This was a fascinating insight given that only 54% of standalone funds and 48% of umbrella funds allow continued retirement fund membership. “This does not mean that members are going to take up such an option, but that they would like the option should they need it,” said Siwiak. Unfortunately, cost of living challenges in retirement look set to persist, if not worsen over time.
Average total member contributions have moved from being roughly equal in 2006, at around 16%, to somewhat misaligned, with standalone funds at 17.44% and umbrella participants at just 14.09%. “Although umbrella funds deliver cost efficiencies and governance benefits, they appear to be weighed by affordability pressures and employer cost sensitivity,” the presenter said. Your writer reckons there are other reasons for the widening contribution gap, notably that some of the large employers in the standalone fund space offer liberal benefits compared to the smaller firms being squeezed into the umbrella funds.
Eskom’s EPPF, which also featured on the Benchmark launch programme, is a case in point. The employer in that scheme contributes 13.5% of members’ pensionable salary to the fund, with members chipping in another 7.3%. Zooming in on the overall contribution breakdown for 2026, you will find that umbrella fund employers contributed an average 8% versus employees’ 6.09%; standalone funds chipped in with 10.68% versus employees’ 6.75%. Contributions for death and disability benefits were similar, at 1.4% and 1% respectively.
More money reaching members’ two-pots
On the good news front, the amount of money making it into members’ two-pots is on the rise. “Despite the lower contribution rates, members are actually saving more towards retirement on average today than 20 years ago,” Siwiak said. In standalone funds, the total provision for retirement has crept up from 11.5% to 14.55%, notably on the back of total fees reducing from 4.5% to 2.8%. For umbrella fund participants, the amount has increased from 10.82% to 11.38%.
Fees are always an emotive issue. “The FSCA really want to see the administration, investment and consulting fees in the retirement fund environment to reduce,” Siwiak said. Broadly, administration fees as a percentage of payroll have fallen from 1.2% in 2006 to 0.45% in 2026 for standalone funds, and from 1.63% to 0.25% among umbrella participants. This fee reduction was described as impressive in the context of the highly regulated environment within which retirement funds operate. Over the past decade, fund administrators have incurred heavy systems-related costs to comply with preservation, tax reporting and two-pots changes.
There have been noticeable shifts in member choice insofar as fund investments are concerned. In 2006 and 2016, a high majority of clients only offered a default with no member choice, but that has improved since. The presenter noted that members wanted a framework to guide them as they age, with a notable preference for a life-stage strategy as default across the standalone and umbrella funds segments.
Responding to consumers’ advice needs
The role of employee benefits consultants and financial advisers came under the spotlight when reflecting on consumers’ needs. Over two thirds of consumers approached for the latest Benchmark survey said they knew exactly where their retirement savings were invested. This suggests that members are more engaged than ever, and taking an active interest in their retirement savings.
Advice was singled out as ‘critical’ to navigate the coming years, with the funds’ focus being to make sure members receive the right advice at important decision points. One of the dangers, and something financial advisers will have to keep in mind, is the growing number of umbrella fund members who only have a retirement pot. This trend shows that employees are still taking everything they can get their hands on when changing jobs; but it will also emerge as a consequence of members repeatedly raiding their savings pot for ‘emergencies’.
What can you expect from the retirement fund industry over the next five years? Sanlam predicts focuses on holistic wellbeing and long-term preservation. Under the former, most survey respondents indicated a preference for a fully integrated health, group risk and retirement solution. Under the latter, the presenter warned of some of the unintended preservation consequences of two-pots. “There is going to be a lot of fragmentation in the industry going forward,” Siwiak concluded.
Addressing fragmentation
She noted that members were changing jobs; changing employers; and leaving little retirement pots at different providers as they move through their careers. Each of these pots incurs fees, and each of these pots needs a section 37B process if the member passes, increasing the fund administration burden substantially. Advisers will have their work cut out to guide members to better decisions at every withdrawal point, because a fragmented environment is not conducive to sustainable retirement outcomes.
Writer’s thoughts:
It is common for product providers to call on financial advisers to support fund members at important inflection points. Do you think advisers get enough access to retirement fund members during their formal retirement savings journeys. Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
