Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

“Two-Pot” system expected to double retirement outcomes for new members

15 December 2021 Vickie Lange, Head: Research, Best Practice & Academy, Alexander Forbes and John Anderson, Executive: Investments, Products and Enablement, Alexander Forbes

National Treasury has released a paper titled ‘Encouraging South African households to save more for retirement’ for public comment. The paper provides proposals aimed at enabling limited access to retirement fund savings pre-retirement, enhancing longer term retirement outcomes by improving preservation and inclusively improving retirement outcomes via the mechanism of auto-enrolment.

The proposal envisages a “two-pot” system under which members would be allowed to access up to a third of their net retirement fund contributions and accruing investment returns on an annual basis to provide short term financial relief. This will be accompanied by the requirement that the remaining two-thirds are preserved over the long term, which will improve retirement outcomes for the majority of fund members relative to the status quo. 

Alexander Forbes is in support of the “two-pot” system as it will make a positive impact on people’s lives by providing a practicable and responsible solution to the real needs faced by members. The lack of preservation is the critical driver of poor financial outcomes at retirement. According to the Alexander Forbes Member Insights™ for 2021, only 9% of members preserve their retirement savings when changing jobs. This in turn leads to very poor retirement outcomes as the average replacement ratio is only 31%. This means that for every R1,000 earned by a member before retirement they will only replace R310 of income in their retirement. For this reason, the proposed reforms are necessary to ensure balancing members long-term retirement savings goals and to meet short-term financial needs.

Our modelling has demonstrated that the “two-pot” system will result in a new member accumulating more than double their fund value at retirement as compared to the current system whilst providing access to a portion of their savings annually.

We anticipate that the proposed “two-pot” system will place further emphasis on the need for retirement funds to better connect with members to provide information, education and advice at critical stages in their lives to optimise both their short- and long-term financial outcomes. The additional complexities of administering the system including the provision of modernised member engagement services to enable such connections requires substantial scale from retirement fund administrators to ensure that members receive value for money. 

Ultimately, the “two-pot” system provides the opportunity for Employers and Funds to re-imagine their benefits and investment strategies to impact people’s lives by finding a meaningful balance between short and long-term needs. 

Going forward, there are still a number of matters to consider in order to implement the “two-pot” system effectively and Alexander Forbes will fully participate in the call for public comment to share our insights with National Treasury.


Quick Polls


There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?


Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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