Samantha Jagdessi, Head of Advice & Best Practice at Old Mutual Corporate; Michelle Acton, Retirement Reform Executive at Old Mutual & Lindiwe Sebesho, Managing Director of Remchannel
With the impending implementation of the Two-Pot Retirement System from September 2024, experts are urging employers to apply a gendered lens to their employee engagement strategies to ensure equitable outcomes for all employees.
“Treating all people equally doesn’t 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,” says Samantha Jagdessi, Head of Advice & Best Practice at Old Mutual Corporate Consultants. “Ahead of implementing the Two-Pot 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.”
Reports suggest 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. [i]Recent research shows significant gender disparities in the rate of withdrawals from long-term retirement savings. During the COVID-19 pandemic, for example, Australian women were found to withdraw a greater proportion of their retirement savings than men.[ii]., which has now resulted in a more significant gender gap in retirement saving[iii].
Michelle Acton, Retirement Reform Executive at Old Mutual, believes that the introduction of the Two-Pot system is expected to help improve retirement outcomes for men and women. The new system is a significant change to the way the country’s retirement funds will work, as it introduces partial compulsory preservation, while also allowing some flexibility for emergencies where fund members require access to retirement savings before retirement. From 1 September 2024 members will contribute one third of their retirement contributions into a savings pot and the remaining two thirds into a retirement pot, which can only be accessed at retirement. In addition, a once off amount equal to 10% of the value of their retirement savings (capped at R30 000) will be allocated to the member’s savings pot from which they will be eligible to withdraw once a year, essentially for emergencies only.
Data-driven analysis by Old Mutual suggests that the Two-Pot system could enable workers who start saving at age 25 and continue to work for 40 years to amass retirement savings in an occupational fund 2-3 times[iv] greater than those accumulated under the old system.
However, Lindiwe Sebesho, Managing Director of Remchannel, notes that women often start 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. Furthermore, the 2023 Remchannel Employee Benefits survey indicated that only 58,5% [v] 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. This severely impacts the opportunity for women to start on an equal footing to their male colleagues when it comes to long-term financial savings,” says Sebesho.
She says that 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 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 within the retirement fund, thereby diminishing the total amount accumulated by the time a woman retires,” Sebesho explains.
She believes employers can help 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.
“We’re seeing more employers giving employees early access to their salaries, known as earned wage access, subject to financial education,” says Sebesho. “Offering employees access to their pay as it’s 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.”
Another trend is offering members increased flexibility towards retirement contributions. However, in a paradox, Jagdessi suggests against lowering contributions and instead encourages employers to give workers the option to increase their savings. Research by Old Mutual Corporate reveals that 40% of members will consider increasing their allocations to their retirement fund after September 2024, thanks to the new Two-Pot 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,” says Jagdessi. She also says that retirement funds should allow women to make flexible contributions based on their changing income levels and career trajectories without penalties. “This could involve reducing contribution rates or making catch-up contributions after career breaks or maternity leave,” she says.
Jagdessi, Acton, and Sebesho made several additional recommendations to 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 need to consider the demographic of their workforce and choose investment options that offer risk-adjusted returns, balancing growth opportunities with capital preservation to cater to 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.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,” concludes Jagdessi. “Applying a gendered lens to this and other retirement policies is crucial for addressing the financial disparities faced by women. By recognising the unique challenges and implementing specific employee value creation strategies, South Africa can move towards a more equitable and inclusive retirement system.”
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ENDS
[i] In times of financial emergency, Australian women were more likely than men to use their retirement savings to support family members seen by the COVID-19 pandemic, with 50% of women citing this as their primary reason for withdrawal, compared to only 20% of men. Those who withdrew superannuation early were often in households experiencing significant financial stress, with a higher likelihood of having lower incomes and more important financial needs. Australian Institute of Family Studies. (2021). Towards COVID Normal: The Early Release of Superannuation, through a Family Lens. Retrieved from https://aifs.gov.au/sites/default/files/publication-documents/2108_6_fias_superannuation_0.pdf
[ii] During the COVID-19 pandemic, Australian Women tended to withdraw a higher proportion of their starting retirement savings balances, with an average withdrawal percentage of 21% compared to 17% for men. Additionally, 14% of women cleared out their entire balance, slightly higher than the 12% of men who did the same. AMP Corporate. (2020, May). Early Super Release: Gender Data. Retrieved from AMP Corporate Newsroom.
[iii] The gender gap in retirement savings has increased across all age groups from June 2019 to June 2021. The most significant increase is seen in the age group 50-54, where the gap grew from 24% to 30%. These numbers illustrate the growing disparity between men’s and women’s retirement savings over the two-year period, emphasising the impact of early retirement saving withdrawals during the COVID-19 pandemic. Coates, B., & Mackey, W. (2022, May 31). Raiding super early has already left women worse off. Let’s not repeat the mistake for home deposits. The Conversation. Retrieved from https://theconversation.com/raiding-super-early-has-already-left-women-worse-off-lets-not-repeat-the-mistake-for-home-deposits-183351
[iv] Old Mutual. (2024) ‘Revolution in Retirement: How the Two-Pot system brightens the future for South Africa’s young workers’, FAnews. Available at: https://www.fanews.co.za/article/retirement/1357/general/1358/revolution-in-retirement-how-the-two-pot-system-brightens-the-future-for-south-africa-s-young-workers/39651 (Accessed: 17 July 2024).
[v] According to the Remchannel’s Employee Benefits report published in December 2023, 58,5% of participating employers of companies pay employees who are on maternity leave their full salary and benefits, while 23% do not provide any paid leave,and 25% offer partially paid maternity leave, highlighting the varied approaches to remuneration and benefits during maternity periods. Remchannel. (2023) Employee Benefits Guide.
