A commonwealth blog on South Africa pensions

Yesterday in well over 9,000 blogs I wrote my first on South Africa , or more particularly information forwarded by David Offord, an Australian about the South African offering by Just (SA).

This is the thinking of one of Britain’s most respected actuaries on reading my blog on South African solutions to the nastiest hardest problem in finance – turning pots to pensions

It will stay anonymous but it’s clearly from an interested expert. Why doesn’t anyone else talk in Britain about South Africa? Well here are some reasons.

Text from messages…..

I like David Orford’s work.

Of course they come from a very different angle in South Africa. DC pot is the first line of Money in Retirement. The Age Pension only comes in if that income (and/or assets – with complex rules) are below a defined level (could be treated as couples). I need to study South Africa and I bet there is a complex legacy from apartheid.

But Australia makes it easy in principle to argue for the need for an annuity to provide a level of comfort for those who want that – indeed like creating a U.K. style basis pension first pension. Obviously some don’t want any and incentives and preferences matter.

In passing I note that I believe the Age pension is different for house owners and renters. A bit like combining Pension Credit and Pensioners Housing support. As ever, the position of those at the bottom of the money spectrum is fiendishly complex.

We have a different problem. At least from SPA. Almost everyone will have full BSP (and many who don’t probably have something from overseas). So they already have the annuity.

The issue is how much MORE to secure in an annuity(like) way. And when? And for those who don’t engage, what to do for them. Almost no one engages with when to start their BSP – they take it from the minimum age (not so in the USA, probably as a result of the way it is described – suppose we said BSP was £300 a week from age 70 and £244 from 67?).

People who have looked at the numbers now agree that lowest earners are just about ok with BSP (not renters which is a whole extra issue, although means tested benefits are an important feature but may have to be adapted). We also assume the richest will be ok although there is a good living to be made in advising them on optimising their outcomes depending on their preferences.

It is some of the middle resourced that are the “main under savers” if measured against a target higher than a fixed minimum. And for whom there is less scope to be or feel happy with material reductions in resources. As ever, this is the group where the roles of government and employers and the individuals are critical. And for whine the willingness to pay for private health care will be tempting to maintain a lifestyle but expensive, and social care will have to be self funded initially.

Another thought

I may have misunderstood, but South Africa or only the Just offering seems to split the pot between that created by tax relief and the rest. That feeds into my views that the AE minimum (or a % of it) should be treated differently and more secure. Include some radical ways that could work.

Background

State old-age grant

The Older Person’s Grant, administered by the South African Social Security Agency (SASSA), is a means-tested benefit for citizens, permanent residents, and refugees aged 60 and over.

Key eligibility and payment details include:

Income threshold: In 2025, the maximum income was R86,280 for single people and R172,560 for married couples.
Asset threshold: Assets cannot exceed R1,227,600 for singles and R2,455,200 for married couples.
Payment: The maximum monthly payment in 2025 was R2,310 for those aged 60–74, and R2,330 for those aged 75 or older.
Funding: The grant is funded by general taxation, not contributions, and serves as the primary source of retirement income for the majority of the elderly population.

Occupational pension funds

For those employed in the formal sector, occupational pensions are widely available.

Defined contribution schemes: The majority of private sector employees are covered by defined contribution schemes, where benefits depend on contributions and investment growth.
Government Employees Pension Fund (GEPF): Public sector workers are covered by the GEPF, Africa’s largest pension fund. It provides defined benefits and other financial benefits to its members.
Governance: The Financial Sector Conduct Authority (FSCA) oversees the numerous registered occupational and private retirement funds in South Africa.

The new “two-pot” retirement system

Effective September 1, 2024, this system applies to new contributions to all retirement funds, including the GEPF.

Retirement Pot (two-thirds): Two-thirds of new contributions are allocated to this pot. These funds are locked in until retirement, at which point they must be used to purchase an annuity.
Savings Pot (one-third): One-third of new contributions are allocated here. Members can make one withdrawal per tax year from this pot, with a minimum withdrawal amount of R2,000.
Vested Pot: This component holds all retirement savings accumulated before September 1, 2024, and is subject to the old rules.
Tax implications: Withdrawals from the Savings Pot are taxed at the member’s marginal income tax rate.

Other pension-related programs

Special Pensions: Administered by the Government Pensions Administration Agency (GPAA), this non-contributory benefit is for individuals who served the public interest in establishing a democratic South Africa.
Unclaimed benefits: The FSCA and various financial institutions can help individuals search for unclaimed retirement savings.