South Africans saving for retirement are playing a dangerous game

One in three clients of Alexander Forbes, South Africa’s biggest standalone retirement-fund administrator, have tapped their pension savings every year since the nation enacted a law that gives them early access to their savings.

The changes, introduced on 1 September 2024, allow members to use some of their savings without resigning or cashing out their funds under a so-called two-pot arrangement.

The government started this after the Covid-19 pandemic exposed workers’ lack of financial resilience, which deepened household distress.

“We’ve paid out R15 billion since the start of two-pot,” AlexForbes Chief Executive Officer Dawie de Villiers said in an interview, adding that the administrator had processed almost 1.1 million claims since the mechanism started.

“It’s almost the same individuals, and it’s about a third of our book withdrawing their allotted two-pot amount every year. That just shows the indebtedness and the amount of cash that people need.”

South African consumers are grappling with a high cost of living exacerbated by above-inflation increases in electricity prices and surging fuel costs fanned by the Iran war.

The central bank has also started increasing interest rates to contain inflation. The country has one of the highest jobless rates in the world, and GDP has expanded by an average of less than 1% annually for more than a decade.

While the nation has made some progress in implementing energy and logistics reforms needed to revive growth, crime, corruption and policy uncertainty are among the factors that investors cite as constraints on the economy and investment.  

Fitch Ratings upgraded this country’s sovereign assessment for the first time in 21 years last week, citing improving “fiscal management and progress on fiscal consolidation”.

The gauge remains two notches below investment grade, the same level as its reading at S&P Global Ratings. 

“The next phase, for us and for South Africa, is really about doing the basics well and doing them consistently,” De Villiers said.

“It’s about leadership and follow-through, because that’s what builds confidence and that’s what turns potential into real impact.”