Caroline Naylor-Renn, Chief Operating Officer at 10X Investments

In South African retirement saving, there was a before September 2024 world and an after.

Before, changing jobs was tempting: You could cash out your retirement money. For many, it solved a short-term problem. For most, it damaged retirement outcomes and reset compound growth. It also fed South Africa’s retirement reality – 10X research shows that only about 6% can retire financially secure.

Then came the after. On 1 September 2024, the two-pot system arrived – designed to tackle preservation by splitting contributions into an accessible “Savings” pot and a restricted “Retirement” pot.

But it hasn’t changed behaviour in the way many hoped. The new system also delivered some unexpected consequences, which hasn’t stopped the bleeding, it simply redirected the flow.

By June 2025, National Treasury revealed that retirement fund members had withdrawn nearly R57 billion through the new access channel, with almost four million withdrawals. By the start of the new tax year in March 2025, 478,000 had withdrawn from their pension for a second time.

South Africa won’t narrow its retirement savings gap through messaging alone. Better outcomes depend on how the system is set up, which is why auto-enrolment is now on the cards.

In the UK, it made retirement savings the default. The UK introduced auto-enrolment in 2012 for workers aged 22 to State Pension age, earning over £10,000 a year, enrolling them by default with an opt-out and a legal requirement to re-enrol opt-outs every three years.

Over a decade later, more than 22 million people save into a workplace pension, compared to fewer than 12 million previously, with around three-quarters of the UK workforce now in the system.

That level of participation came from intentional design, which made saving automatic and opting out a choice.

South Africa still relies on voluntary participation. As a result, coverage is low, preservation weak, and large numbers of people are on course for inadequate retirement incomes.

Treasury has already positioned auto-enrolment as the logical successor to the two-pot framework, arguing a voluntary approach is a key reason why roughly 30% of formal‑sector workers still do not belong to any retirement fund.

Treasury’s default regulation framework also pushes funds to put clear defaults in place so that members who do nothing are still steered away from value‑destroying choices.

Defaults more important than choice

One of the clearest lessons from the UK is that most auto-enrolled members do not actively tinker with their pensions. They stay in the default fund, at the default contribution rate, often for their entire working lives.

South Africa’s current regulations require employer-sponsored funds to offer a default investment portfolio, and related rules cover default preservation and default annuity strategies. In practice, most members stay in the default from their first payslip to retirement, which is why the default portfolio must be structured well. It means contributions need to be set – and escalated where possible – to give people a realistic chance to replace a meaningful share of pay in retirement. Second, the investment strategy has to follow a life-cycle logic: take enough growth risk when members are young, then reduce risk as retirement approaches. Third, fees have to be aggressively managed, because a seemingly small annual fee compounds into a meaningful loss over a working lifetime.

How it’s working out

The UK phased in auto-enrolment contributions, ending with a minimum total of 8% of qualifying earnings, typically split 5% from the employee and 3% from the employer.

Those initial low rates drew criticism for locking in inadequacy, and subsequent assessments show that while participation has risen sharply, many workers remain on track for retirement incomes that fall short of expectations. That assessment is now driving a second wave of reform, including powers under the Pensions (Extension of Automatic Enrolment) Act to lower the minimum age to 18 and remove the lower earnings threshold so contributions start from the first pound earned.

The sequencing was deliberate: get people in first, then address adequacy. But in South Africa, high mandated contributions introduced overnight would be politically and economically difficult in a low-growth, high-unemployment environment. A plausible approach is to start with modest contributions and hard‑wire escalation over time – for example, linked to wage growth or years of service and reinforced by preservation rules – so that adequacy improves gradually without requiring an upfront jump in contribution rates.

Changing outcomes

Auto-enrolment has not only changed behaviour in the UK, it has altered the structure of the pension market. The steady inflow of contributions into a relatively simple set of default schemes has driven consolidation, particularly into large multi-employer schemes. Those schemes have in turn used their clout to lower administration and investment fees, often by adopting low-cost index strategies and exercising greater bargaining power with service providers.

Across a working life, shaving a percentage point off charges translates into materially higher retirement pots, even if contribution rates stay the same.

Australia has pushed this idea further than most countries with its Superannuation system, introduced in 1992. Employers have to pay a set percentage of ordinary time earnings into super, now set at 12%, so money goes in whether people are engaged or not. The system is also big and concentrated, which gives funds scale and bargaining power on costs.

Then there’s the discipline. Default “MySuper” products are tested on what members get after fees. If a product consistently lags, it gets publicly flagged and faces pressure to fix itself, merge, or shut to new members. The combination of compulsory contributions, scale, and disciplined fee oversight has created very large retirement asset pools, and a smaller slice of returns lost to charges.

South Africa has far to go, with many smaller funds and legacy arrangements where costs are high relative to value. Aligning auto-enrolment with stronger standards on charges and governance, and encouraging consolidation where appropriate, would allow more members to benefit from institutional pricing and simple, low-cost default portfolios.

Employers must deliver

In both the UK and Australia, the workplace is the main distribution system for retirement saving.

UK employers must identify eligible workers, enrol them into a qualifying scheme, pay minimum contributions, and re-enrol those who have opted out at three-year intervals. Australian employers must pay into a complying fund for eligible staff, with contributions treated as part of normal remuneration.

South Africa already uses employers as a conduit for retirement saving in the formal sector, but participation is not universal and preservation is weak. Auto-enrolment would build on existing payroll infrastructure to extend coverage. A mixed model is possible: employers must enrol eligible staff into a qualifying fund; funds must meet stringent standards on default design, governance and cost; workers can carry their accumulated rights with them as they move between employers. Australia’s experience suggests that once contributions are embedded in the wage bargain and handled routinely through payroll, they become politically and socially “normal”.

South Africa’s choice is therefore not between “nannying” workers and respecting their freedom; it is between maintaining a voluntary system that produces weak outcomes, and moving towards auto-enrolment that puts the onus of design and execution on institutions.

The point isn’t to import a policy. It’s to accept that outcomes are shaped by systems.

ENDS

The content herein is provided as general information and does not constitute financial advice. 10X Investments is an authorised FSP (number 28250). The 10X Living Annuity is underwritten by Guardrisk Life Limited.