Has South Africa’s national legislation changed lately?
The world of social media throws out curve balls from time to time. A number of seemingly legitimate sources were quoting that “South Africa Confirms New Retirement Age Rules – Major Changes Start May 30.” Those articles suggested that the South African government was abolishing its gender-based retirement ages of 60 for women and 65 for men, and that the new retirement age would be 65 for all South Africans. This has led many to discuss the implications of retirement south africa.
Not so fast Kowalski!
The government was quick to respond, with the Daily Maverick publishing an informative article
at the end of May that rebuffed the “retirement age of 65 for all” claims.
No, there is no change to the retirement age [Daily Maverick, 27 May 2025]
In South Africa, there is no legally prescribed national retirement age. Retirement age is typically defined in employment contracts or fund rules, and not by legislation. But this aside, the topic of retirement age remains a very relevant one, with more and more corporate boardrooms including this topic on their monthly or quarterly Exco agendas.
Many South Africans are currently evaluating their options regarding retirement planning, which makes the discussion on retirement south africa even more pertinent.
During the early 2000’s there was a move to reducing corporate retirement ages, in part to support the Broad-based Black Economic Empowerment (BBBEE) requirements of the time, both then and still prevailing. But the downside of an earlier company retirement age is less time to save for your retirement, and this in turn reduces the drawdown (your pension) that you will access ultimately from your retirement savings (pots).
The flipside of an older retirement age is of course retaining experienced team members for longer (and giving your employees more time to save for their retirement). This should be balanced with the opportunities of employment for the youth, but in short, corporate South Africa is asking the question: “Should we change/push back out our company retirement age?”
The six levers of designing better retirement outcomes – retirement age is very much one of them
Old Mutual’s Blessing Utete and Keri-Lee Edmond wrote an informative article about this that lifted out the six levers that are most relevant for ensuring a better outcome for your retirement. The article appeared in the Old Mutual Thought Leaders Forum special edition of Mindspace: Designing better outcomes | Old Mutual Thought Leaders Forum
These six levers are:
- The type and price of the pension you buy at retirement
- How much of your salary is “pensionable salary”
- Preservation rates
- Percentage of contribution
- Investment strategy (and the associated investment costs)
- Normal retirement age
Most appropriate for this article is lever 6, however, levers 4, 5 and 1 are also very important as we look at the merits of a younger or older retirement age.
At the risk of over-simplification, I am going to ignore the nuances of gender (which of course is very relevant, as women do live longer than men), but applying the principle of averages, the following starting assumptions should deliver most South Africans a comfortable retirement outcome:
- Aim to make 100% of your salary pensionable
- Aim to save at least 15% of your pensionable salary towards your retirement for all your working years (assumed to start from age 25 – this is after the deduction of any contributions to risk benefits and expenses)
- Aim to save for your retirement for at least 40 years – so the initial assumptions being made here are that you will save from age 25 to a retirement age of 65
- Ensure that your underlying investment fund has an aggressive investment mandate that should aim to deliver a net investment return over time of inflation + 5.35%
Using assumptions for inflation and salary inflation of 5%, and applying the averages for gender, the above position should deliver an actual replacement ratio of 72%.
What is a replacement ratio again?
A replacement ratio is the ratio of your likely post-retirement pension as a percentage/ratio of your pre-retirement salary at your retirement date. Many advisers suggest that you target a ratio of at least 70%, as by that stage of your life, you should have relatively lower expenses, with children educated (and hopefully earning an income of their own), with bonds and any other debt paid off, and hopefully with you still being in relatively good health (though the 70% does allow for ongoing provision towards a medical aid).
So – can you afford to retire at 60 or 61 or 63?
Keeping the above assumptions constant, it goes without saying that the trend in the 2000’s (of company’s reducing their retirement ages) would reduce the replacement ratio. The following table indicates the impact of these reduced retirement ages on the expected replacement ratio (all else staying constant – the line in bold indicates the base set of assumptions above):
| RETIREMENT AGE | REPLACEMENT RATIO |
| 67 | 83% |
| 65 | 72% |
| 63 | 62% |
| 61 | 53% |
| 60 | 50% |
The “how much is enough” question clearly becomes very relevant here, if you are considering an earlier retirement age. For every year lower that you hope to retire, it is one year less of having your (already quite substantial) retirement savings pot otherwise growing by even more, and also one year more of having to provide an income for yourself post-retirement (from a younger age, which also means buying a guaranteed life annuity will give you a lower starting income). While these are intuitive statements, the impact on your replacement ratio is there for all to see.
Clearly, simply working for 2 extra years makes a huge impact on the ultimate retirement pension you will be able to access as a percentage of your salary at retirement!
Considering a few other levers – contribution rates (lever 4)
Lever 4 is the level of contribution rate going towards retirement savings. After the roll-out of the Two-Pot regulations, the next wave of possible regulation that you could expect includes:
- Compulsory membership – all working South Africans being forced to be part of a retirement fund; and
- Compulsory contribution levels – all South Africans being forced to save an increasing amount of their income in a retirement fund.
Both pension reforms, if introduced, should be welcomed and celebrated. They may have the impact of increasing South Africa’s overall savings rates, which likely should see more money invested in the underlying infrastructure that would support South Africa’s economic growth, which would in turn should see investment returns improving – and thus the virtuous cycle would continue.
Right now, there are still too many members contributing too little towards their retirement. All management committees/trustees should be discussing the option of increasing contribution rates at least at every benefit review cycle.
The impact of lower or higher contribution rates on net replacement ratios is as follows (using our original starting assumptions for all other variables):
| CONTRIBUTION RATE | REPLACEMENT RATIO |
| 27.5% | 131% |
| 20% | 95% |
| 17% | 81% |
| 15% | 72% |
| 13% | 62% |
| 11% | 52% |
| 10% | 48% |
Remember that the government does allow generous tax concessions on contribution rates up to 27.5% (with a Rand cap of R350,000), so ideally all employers should be exploring ways to enable their employees to save more towards their retirement, if they can, even if only as-and- when.
Considering a few other levers – investment strategy (lever 5)
The key point to lift out in this section is the need to pursue aggressive underlying investment strategies for your retirement investment, and the importance of extending this theme to one’s post-retirement investment strategy, where possible.
In the context of looking just at the 40 years of pre-retirement savings build-up, the impact of underlying investment returns on your replacement ratio (all else staying constant, so going back to the 15% contribution rate) is as follows:
| NET INVESTMENT RETURN | REPLACEMENT RATIO |
| 6% | 84% |
| 5.5% | 74% |
| 5.35% | 72% |
| 5% | 66% |
| 4.5% | 58% |
| 4% | 51% |
The point about post-retirement investment strategy, and the related investment- and advice costs at that stage of your life, is simply to highlight that a member typically incurs 70% of their investment-related expenses in the last 30 years of their life, so the point is more significant post- retirement than pre-retirement.
Considering a few other levers – type of pension you buy in retirement (lever 1)
There’s a trend of South Africans buying a living annuity with their retirement saving=s. There can be some very good reasons, especially where health is playing a negative role in one’s life, but for the rest, there is a very sound basis for considering a blended approach.
A guaranteed life annuity provides vital lifetime income protection for someone starting to draw down on their retirement savings. In the same way that people are comfortable to take out life insurance at an early stage of their live, when the risks of an early death are so high, so people should become more comfortable with taking out insurance to cover the risks of them living longer than expected post-retirement.
There are many models emerging that aim to illustrate the impact of a blended approach. Ultimately, every person is different and annuity rates change weekly, so everyone should obtain quotes to help illustrate this impact for themselves. This is where the role of a financial adviser is especially valuable. This post-retirement phase of one’s life is a point where critical financial decisions need to be made, and so individuals in any doubt should seek the assistance of a trusted financial adviser.
This is what the 6-lever model reveals about the extra value that comes from a blended living- annuity/ life-annuity approach (at age 65, with the life annuity being a with-profit annuity with a post-retirement interest rate (PRI) of 3.5%) :
| % Living Annuity | Replacement Ratio |
| 100% | 72% |
| 80% | 79% |
| 60% | 88% |
| 50% | 93% |
The replacement ratio dynamics supporting a life annuity typically are a little worse if you retire at a younger age, and conversely a lot better if you retire at a later age. Remember too that you can convert a portion of your living annuity proceeds to a life annuity at any time (but understandably you can’t reverse a life annuity purchase decision), so this conversation about the optimal level of blended annuity is one you should have actively with your financial adviser throughout your retirement.
How much is enough?
- At what age can you afford to retire and start drawing down on your retirement savings?
- Are you saving enough for your retirement?
- And how best might you blend your annuity options in retirement?
There are many questions and clearly lots (more) to consider. Hopefully this article provides a basis for your core set of initial benefit-structuring discussions and decisions.
Should you wish to discuss your retirement planning, please the Mindoro Group team on acirfa.puorgorodnim@noitacinummoc.
Source: John Kotze,Old Mutual Corporate, June 2025
Disclaimer: This article is intended for general informational purposes only and does not constitute financial, tax, or legal advice. You should consult a qualified financial adviser before making any investment or retirement-related decisions
