Johan Kriek, Founder of Quantum Leap

South Africa spends a great deal of time discussing whether retirement fund members are saving enough.

It is an important conversation. A member contributing 5% of salary for 20 years is unlikely to achieve the same retirement outcome as someone contributing 15% over a full career. Contribution rates matter, and recent reforms aimed at improving preservation and member engagement have rightly focused attention on improving retirement outcomes.

However, adequacy is too often treated as if it were simply a function of contributions and time.

It is not.

Two members contributing exactly the same amount over a working lifetime can experience materially different retirement outcomes depending on their fees, investment strategy, timing of returns and, perhaps most importantly, what happens after they retire.

This is particularly relevant in South Africa, where retirees increasingly face the prospect of funding 25 to 30 years of retirement in an environment characterised by inflation, market volatility and significant inequality.

Adequacy, in other words, is not simply a savings problem. It is a system problem.

Consider two members earning the same salary and contributing the same amount over 40 years. One pays higher fees, moves into conservative assets too early and enters retirement without any support regarding sustainable income levels. The other benefits from lower fees, an appropriate growth allocation and ongoing monitoring of income affordability.

It would be surprising if they achieved the same outcome.

Fees have understandably received considerable regulatory attention over the past decade. They are visible, measurable and comparatively easy to compare. Small differences compound significantly over time, and members should absolutely expect value for money from their providers.

But fees are only part of the story.

Asset allocation arguably matters even more.

There remains a tendency, particularly as members approach retirement, to reduce exposure to growth assets in favour of more conservative portfolios. While this may reduce short-term volatility, it also reduces expected returns at precisely the point when many members still have investment horizons measured in decades rather than years.

This is especially important in South Africa. Longevity is increasing, and inflation remains a persistent threat to purchasing power. A retiree aged 65 today may reasonably expect to spend the next 25 years in retirement. For many, maintaining exposure to growth assets will not be a luxury; it will be a necessity.

Of course, growth assets introduce risk. But avoiding risk altogether is itself a risk.

The industry’s challenge is therefore not simply determining how much risk members should take, but how that risk should be governed over time.

This brings us to perhaps the most overlooked component of adequacy: governance.

In a country where many retirees rely on living annuities, and where access to affordable ongoing financial advice is uneven, adequacy cannot be separated from the quality of post-retirement governance.

Retirement is often treated as a transaction. Members accumulate assets, retire, select an income and then largely manage the consequences themselves. Yet retirement is not an event; it is a process.

Markets change. Circumstances change. Health changes. Spending patterns change.

A sustainable income at age 65 may no longer be sustainable at age 75.

Who identifies that?

Who monitors whether a member’s income remains affordable?

Who intervenes before foreseeable harm occurs?

These questions become even more important in a country where many retirees cannot afford ongoing financial advice. If advice is unavailable or unaffordable, the responsibility does not disappear. It merely shifts elsewhere.

This is why the growing focus on member outcomes, conduct and retirement support is so encouraging. Initiatives such as COFI and the Draft Conduct Standard on Living Annuities recognise that good retirement outcomes require more than simply accumulating assets. They require systems, processes and governance capable of supporting members throughout retirement.

Ultimately, adequacy should not be measured solely by asking whether members contributed enough.

It should also ask:

• Did members receive value for money?
• Were they invested appropriately?
• Was their income sustainable?
• Were emerging risks identified and addressed?
• Did the system continue to support them after retirement?

Contributions matter. So do fees. So does asset allocation.

But without governance, even the best accumulation strategy can fail.

South Africa does not simply need a retirement system that helps people save more.

It needs one that helps them spend with confidence.

Ed’s note:  This is the fourth in a series of articles that Johan is writing for EBnet building up to this year’s Actuarial Society of South Africa’s Convention. You can find his previous three articles here:

The pension system South Africa nearly has

Living annuities are not the problem – ungoverned drawdown is

Supporting members who cannot afford advice: why governed defaults matter

ENDS