Johan Kriek, Founder of Quantum Leap

South Africa is not usually described as having one of the world’s best pension systems.

Coverage is incomplete. Unemployment and informality remain major barriers. Preservation has historically been weak. Many members still reach retirement with too little. International rankings do not flatter the system.

And yet, viewed through a slightly different lens, South Africa may be closer to a strong private retirement-income system than the headline scores suggest.

The issue is not that South Africa lacks pension architecture.

The issue is that the architecture is unfinished.

Most pension debates focus on accumulation: are people contributing, are they preserving, are they invested appropriately, and are charges reasonable? Those questions matter. But they are only half the story.

A pension system should not only help people build a pot.

It should help turn that pot into sustainable retirement income.

That is where the comparison with other DC systems becomes interesting.

The UK has strong auto-enrolment and good pre-retirement preservation. Members generally cannot access workplace pension savings before minimum pension age. But once members reach retirement, pension freedoms mean the system gives them considerable flexibility to withdraw, transfer, draw down or cash out. The UK is now trying to fill that gap through Guided Retirement, default decumulation pathways, CDC and stronger value-for-money reforms.

In other words, the UK has been relatively good at preserving the pot before retirement, but is still building the machinery to preserve income after retirement.

Australia has world-class compulsory superannuation. It has strong accumulation, strong preservation and deep institutional investment capability. But its retirement-income phase remains a work in progress. Account-based pensions dominate, and the Retirement Income Covenant is an attempt to push funds beyond accumulation into helping members balance income, risk and flexibility in retirement.

Canada is more fragmented. It has strong public pillars, registered savings vehicles and workplace pension plans, but private decumulation remains uneven. RRIFs, LIFs, annuities and advisory solutions all play a role, but the conversion of accumulated capital into sustainable lifetime income is not governed consistently across the system.

South Africa is different.

It has weaker coverage than the UK or Australia. It has historically suffered from poor preservation before retirement, especially where members accessed retirement savings on changing jobs. Two-pot reform is a major attempt to address this, by improving preservation while still allowing limited liquidity.

But South Africa also has something many systems are still trying to build: a private retirement architecture that already recognises that retirement savings should become retirement income.

Compulsory annuitisation exists. Living annuities are widely used. Regulation 28 provides a prudential investment framework. The private retirement industry is sophisticated. Regulation 39 already requires retirement funds to have an annuity strategy. Draft conduct work on living annuities points in the direction of stronger drawdown governance.

That combination matters.

South Africa’s weakness is not that it lacks a retirement-income vehicle. It is that the vehicle has too often been treated as an investment product with a withdrawal rule, rather than a governed pension income arrangement.

The living annuity is not the problem.

Ungoverned drawdown is the problem.

A living annuity can provide flexibility, investment growth, income choice and the possibility of leaving capital to a spouse, dependants or the next generation. That matters in South Africa, where wealth inequality remains deeply shaped by history and where the ability to preserve and transfer capital should not be dismissed lightly.

At the same time, living annuities can fail members badly if income is set too high, fees are excessive, investment strategy is inappropriate, or nobody monitors whether the income remains sustainable over time.

This is where the next phase of reform should focus.

South Africa should not simply copy the UK’s Guided Retirement model or Australia’s Retirement Income Covenant. It has its own opportunity: to build governed retirement income from structures it already has.

That does not require tearing up the system.

It requires two decisive moves.

First, make the Regulation 39 annuity strategy an opt-out default rather than an opt-in option.

Members who reach retirement should not be left to navigate one of the most complex financial decisions of their lives alone, particularly where advice is unaffordable or unavailable. A properly governed default annuity strategy would preserve choice, but make a sensible retirement-income pathway the starting point.

This matters because the advice gap is not a minor inconvenience. It is a structural weakness. Many lower- and middle-income members cannot afford meaningful retirement advice. Others will not engage until it is too late. A system that depends on every member making a complex, high-stakes, once-off decision at retirement is not a serious retirement-income system. It is a lottery with paperwork.

Regulation 39 already points in the right direction by requiring funds to have an annuity strategy. But if the strategy sits on the shelf while members are left to opt in, the system still relies too heavily on member initiative at exactly the point where support is most needed.

The default should not remove choice.

But it should change the starting point.

Second, finalise and implement the draft conduct standard on living annuities.

Living annuities should not be treated merely as investment products with drawdown limits. They should be governed as retirement-income arrangements. That means sustainable income-setting, appropriate investment strategy, ongoing monitoring, clear intervention triggers, value-for-money discipline and evidence that member outcomes remain on track over time.

A living annuity can be a pension in substance, even if it is not a guaranteed annuity in legal form.

But only if it is governed like one.

That requires more than an annual reminder that the drawdown rate can be changed. It requires a framework that asks whether the income being drawn is still sustainable, whether the member is at risk of running out too early, whether investment risk is appropriate, whether fees are eroding outcomes, and whether changes in markets, inflation, longevity and annuity pricing have affected the member’s position.

This is not about forcing every member into the same solution.

It is about recognising that flexibility without governance is not freedom. It is exposure.

There is also a deeper fairness issue.

Life annuities provide valuable longevity protection. They will be appropriate for some members, particularly where secure income is essential. But in a country as unequal as South Africa, longevity pooling is not automatically neutral.

If poorer members, on average, have shorter life expectancies than wealthier members, then pooled annuity structures can raise uncomfortable distributional questions. The risk is that lower-income, shorter-lived members subsidise higher-income, longer-lived members. In a society still dealing with the legacy of deep historical wealth inequality, that should not be brushed aside as a technical detail.

This is not an argument against annuities.

It is an argument against pretending that annuitisation is always the fairer answer.

A well-governed living annuity default could offer a different balance: sustainable income, investment growth, flexibility, appropriate risk controls, and some ability to preserve capital for dependants or the next generation. For many South African members, that may matter greatly.

Together, an opt-out Regulation 39 annuity strategy and a strong living annuity conduct standard could change the character of South Africa’s private pension system.

They could support members who cannot afford advice.

They could reduce unnecessary value leakage.

They could allow well-governed growth exposure to improve adequacy.

They could avoid forcing lower-income members into expensive or potentially regressive annuity structures.

And they could preserve some ability to pass wealth to dependants and the next generation.

The key distinction is between preserving the pot before retirement and preserving retirement income after retirement.

The UK is strong on the first and still building the second.

Australia is strong on the first and still wrestling with the second.

Canada remains fragmented on the second.

South Africa has struggled with the first, but may already have the bones of the second.

That is why South Africa’s private pension system should not be described as hopeless.

It is unfinished.

The combination of two-pot preservation, an opt-out Regulation 39 annuity strategy, and a properly implemented living annuity conduct standard could create something distinctive: a system that does not force a choice between flexibility and pension discipline.

The goal should not be to replace living annuities.

The goal should be to turn living annuities into living pensions.

ENDS