Two-pot retirement system: Employers warned to educate women specifically

Industry experts are urging employers to ensure their employees, particularly women, are educated about the two-pot retirement system and the consequences of withdrawing some of their retirement savings.

“Treating all people equally does not necessarily result in equal outcomes. Traditional gender roles and societal expectations can exacerbate the pressure on women to prioritise family needs over their own financial security,” Samantha Jagdessi, head of advice and best practice at Old Mutual Corporate Consultants, says.

“Ahead of implementing the two-pot retirement system, employers have a key responsibility to educate women employees on the new system with gender sensitivity by understanding the social nuances and the potential implications for women.”

Research suggests that women are more likely than men to use their retirement savings to support family members in emergencies, especially when they are the sole income providers. During the COVID-19 pandemic, for example, Australian women were found to withdraw a greater proportion of their retirement savings than men, which has now resulted in a more significant gender gap in retirement savings.

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Women save less for retirement due to gender pay gap

Lindiwe Sebesho, managing director of Remchannel, notes that women often start saving for retirement at a disadvantage due to the gender pay gap and career breaks due to caregiving responsibilities, which requires employers to apply a gender lens to their current employee value proposition (EVP).

“Remchannel remuneration trends indicate that while female representation has increased, female pay in South Africa generally lags behind male pay by 18% at the top decile and 25% at the bottom decile. In addition, the 2023 Remchannel Employee Benefits survey indicated that only 58,5% of companies pay employees who are on maternity leave their full salary and benefits.

“Many women in South Africa still take a significant pay cut during maternity leave. Their only guaranteed income during this period is through the Unemployment Insurance Fund (UIF), which is not nearly enough to address their needs at this time, leaving women financially strained.”

Sebesho says this severely impacts the opportunity for women to start on an equal footing with their male colleagues when it comes to long-term financial savings. “Societal pressure and traditional conditioning often push women to prioritise family over careers, which could lead to greater expectations for women to access the savings portion of their two-pot retirement system savings now when they have children and in times of emergency.

“Frequent or substantial withdrawals from the savings pot will further reduce the funds available for growth in their retirement funds, thereby diminishing the total amount accumulated by the time a woman retires.”

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This is what employers can do to protect women with the two-pot retirement system

She believes employers can help to mitigate these disadvantages by providing employee benefits solutions tailored to women’s needs and creating alternative, less expensive liquidity options than to withdraw from their retirement savings.

The recent April 2024 Remchannel Salary and Wage survey showed a trend in this direction. “Employers unable to sustain high salary increases are starting to be innovative by offering a holistic employee value proposition across the financial, physical and emotional wellbeing aspects to attract, engage and retain talent, especially skilled females.”

Sebesho says they now see more employers giving employees early access to their salaries, known as earned wage access, subject to financial education. “Offering employees access to their pay as it is earned enables them to manage their cash flow without resorting to withdrawing from their retirement savings or creating more expensive debt to meet their short-term needs.

“Employers are also increasingly offering ‘soft loans’ with lower interest rates and more flexible repayment schedules.”

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Flexibility for retirement contributions?

Another trend is to offer members increased flexibility for retirement contributions. However, Jagdessi argues against lowering contributions and instead encourages employers to give workers the option to increase their savings.

Research by Old Mutual Corporate shows that 40% of members will consider increasing their allocations to their retirement fund after September 2024, thanks to the new two-pot retirement system.

“This suggests that the perceived opportunity cost of investing in a retirement fund is now reduced and members see the value of investing more, as they can access this money in an emergency,” Jagdessi says.

She also points out that retirement funds should allow women to make flexible contributions based on their changing income levels and career trajectories without penalties, such as reducing contribution rates or making catch-up contributions after career breaks or maternity leave.

Jagdessi, Acton and Sebesho recommend that employers:

Pay women equitably: Employers should focus on paying female workers a fair salary. According to a United Nations Women’s report, the gap has widened over recent years. In 2021, women in South Africa earned 78 cents for every rand earned by men, compared to 89 cents in 2008. Robust implementation of fair and responsible pay policies, ensuring equal pay for equal work, can help bridge the ability to contribute to retirement savings between men and women.

Investment strategies that address women’s needs: Given women’s longer life expectancy, trustees should focus on long-term investment strategies that ensure stability and sustainable income. Trustees must consider the demographic of their workforce and choose investment options that offer risk-adjusted returns, balancing growth opportunities with capital preservation to cater for different career trajectories and potential career breaks.

Boost financial education for all, especially women: Employers must provide financial planning with a gender lens. Providing financial education that addresses these concerns can help women build confidence in managing their retirement savings. Educating women about investment opportunities and risks and providing accessible financial advice can help them appreciate the value of more aggressive strategies, enabling them to see through short-term volatility and benefit from higher expected returns over the long term.

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Increased social pressure to access savings under two-pot retirement system

The potential for increased social pressure on women to access their retirement savings under the two-pot retirement system is a valid concern. Addressing this issue requires a combination of employer interventions to ensure that women workers can protect their financial future while managing their other responsibilities.

“The implementation of the two-pot retirement system in South Africa represents a significant shift in retirement planning, Applying a gendered lens to this and other retirement policies is crucial for addressing the financial disparities women face. By recognising the unique challenges and implementing specific employee value creation strategies, South Africa can move towards a more equitable and inclusive retirement system, “Jagdessi says.