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South Africa’s real retirement age is unbelievable but true. Most of us will only be able to retire at the ripe old age of 80, according to pension fund data.
Most people think they will retire at 65 but the reality is quite different. According to Sanlam Corporate’s internal member data, South Africa’s true retirement age when most citizens can afford to retire comfortably, is closer to 80.
That is why Kanyisa Mkhize, CEO of Sanlam Corporate, calls for the country’s corporates, financial institutions and other stakeholders in the retirement funding industry to work together to create a more sustainable working environment where more South Africans can retire comfortably.
“Our internal member data indicates that while 65 remains the official retirement age, the majority of South Africans cannot afford to retire when they turn 65.
“Most people will need to work an additional 15 years to achieve financial security in retirement. This 15 year gap represents a financial challenge and a fundamental shift in how we think about retirement planning and employee benefits in South Africa.”
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Mkhize says this gap between expectation and reality presents significant challenges for individuals, businesses and the broader economy, while it also highlights the critical role holistic benefits will play in shaping a more secure future for the country’s workforce.
Sanlam Corporate’s insights are based on over 300 000 Sanlam Umbrella Fund members, demographic trends, actuarial data and economic factors affecting the country’s retirement outcomes.
Based on this data, the average South African is expected to achieve a 25% replacement ratio at the traditional retirement age of 65 which is significantly below the industry benchmark of 75% required for a comfortable retirement. The replacement ratio is the percentage of your final working salary you will receive as retirement income.
Sanlam Corporate’s internal analysis assumes projected investment returns at 9.25% per year based on a moderately balanced portfolio benchmark, estimated inflation and salary escalation rates at 5.25% per year aligned with the Reserve Bank’s mandate, a 35-year savings term, acknowledging that many South Africans face delayed entry into permanent employment and an initial working age of 30 years.
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Mkhize says for individuals the extended working years have profound implications for personal financial planning and career development. “Workers must now consider strategies for maintaining employability well into their seventies while managing their health and skill development to remain competitive in the job market.”
She says that employers now face complex challenges in managing an ageing workforce while balancing transformation objectives.
“Sanlam Corporate’s member data highlights the tensions between retaining experienced older workers and creating opportunities for younger employees in a country with high youth unemployment and one of the world’s highest youth populations.”
She also points out that with almost 60% of South Africans under the age of 25 according to Statistics SA, there is even more competition for jobs among young people.
For the state the new retirement age data highlights critical implications for social policy and welfare systems. Mkhize says the old age pension means test, designed to assess financial hardship among older citizens, presents a challenging paradox.
“On the one hand, individuals with preserved retirement funds may be disqualified from accessing state support. On the other hand, these same funds are often inadequate to ensure a comfortable and secure retirement, leaving many caught in a financial grey area. This underscores the urgent need for a more balanced retirement savings and state assistance approach.”
How can we bridge the 15 year gap and still retire at 65? Mkhize recommends several interventions South African corporates can take to address this gap, including life cycle contribution options, enhanced employer matching programmes and access to financial advice, financial planning tools and financial education.
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Implementing automatically escalating contribution rates that align with annual salary increases represents a powerful tool for improving retirement outcomes, Mkhize says. “When contribution increases coincide with salary adjustments, employees are less likely to feel the impact on their take-home pay.
“This approach addresses one of the crucial challenges in retirement saving as many pension fund members never revise their contribution rates over their entire savings career. By automating these increases, members can boost their savings without facing difficult decisions about reducing their current standard of living.”
Expanding and optimising employer matching contributions can significantly accelerate retirement savings accumulation, Mkhize points out.
“When employers increase their matching thresholds or introduce more generous matching ratios, employees are incentivised to save more while effectively receiving additional compensation through retirement contributions.”
This approach aligns the interests of employers and employees while leveraging tax advantages available through retirement savings vehicles.
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Making professional financial advice more readily available to all employees, coupled with a solid foundation of financial education, can help employees optimise their investment choices, adjust contributions appropriately and maintain a long-term perspective on their retirement planning.
Mkhize says this includes using digital planning tools to help employees understand their retirement trajectory and make informed decisions.
“We have a responsibility to help South Africans retire with dignity, not decades past their prime. This requires a coordinated effort from all stakeholders. This is not just about individual savings behaviour, but about creating a sustainable system that works for all South Africans across generations.
“While the 80-year retirement age represents a challenging reality, it also presents an opportunity for innovation in our approach to work, savings and retirement planning. If we want to change this reality, we need a collective commitment to providing holistic financial solutions that can help reduce the retirement age and accelerate a better working South Africa.”
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