More than R43 billion has already been withdrawn under South Africa’s new Two-Pot retirement system — and over R11 billion collected in tax revenue. If you are a business owner or head of Human Resources for a South African business, these figures should be cause for concern.


These staggering figures were revealed as part of SARS’ preliminary review into the implementation of the Two-Pot retirement system, which came into effect in September 2024. While the system aims to provide employees with greater access to short-term savings, the sheer volume of early withdrawals surprised even tax authorities.


While the consumer market may have received a short-term boost, this shift raises serious considerations for the protection of long-term savings and small and medium-sized business owners who see their employees as key assets.


As the world of work evolves and more employees opt to manage their own savings, forward-thinking employers are seeking new ways to offer meaningful long-term support. One standout option? Umbrella Funds — a retirement savings solution that supports employee well-being while reducing employer administrative and compliance burdens.


Compliance costs are driving Umbrella fund member numbers

An Umbrella Fund allows multiple unrelated employers to participate in a single retirement savings structure, offering the scale and efficiencies of a larger fund while removing some of the burden from employers. Typically, these are designed to reduce administrative costs and enhance governance.

With the South African retirement fund industry consolidating, now is an opportune time for employers and HR teams to assess whether their service providers still offer the best fit.

Standalone offerings are increasingly struggling to meet rising compliance demands. The Financial Services Conduct Authority (FSCA) has raised red flags in several areas, including:

  • Vacancies on boards of Trustees
  • Failure to submit annual financial statements timeously
  • Principal officers neglecting fiduciary duties
  • Absence of Treating Customers Fairly (TCF) policies
  • High levels of arrear contributions and unclaimed benefits
  • Delays in processing death and withdrawal claims

For many SMEs, the effort and expertise needed to manage these issues internally is simply not feasible.

This is further complicated by the unintended consequences of the Two-Pot retirement system, which has introduced additional administrative strain. Employees are now able to make annual withdrawals from their savings pot and when they leave employment there is now a retirement pot that cannot be cashed out until retirement.  Earlier default preservation legislation now means that Employees may retain these retirement pots within their ex-employer funds, increasing the workload for fund administrators and HR teams.


Great benefits come with great responsibilities 

The Two-Pot retirement system has also shone a light on employer compliance — or lack thereof. In the lead-up to its rollout, several retirement funds and SARS discovered instances where employers had failed to pay over retirement contributions deducted from employees’ salaries.

This is more than just a technical error. It carries serious legal, reputational and financial risks and can deeply undermine employee trust.

If you’re offering a Retirement Fund, whether Stand Alone or an Umbrella Fund, as a tool to attract and retain talent, you must also be fully committed to your compliance responsibilities. Contributions need to be paid on time, records need to be accurate, and employees should be informed and engaged.

With the retirement landscape shifting rapidly and many smaller funds being absorbed, employers now have an opportunity to evaluate providers based on more than just pricing.

While retail investors benefit from clear cost disclosure through Effective Annual Cost (EAC) reports, comparing Umbrella Funds is more complex. Costs typically include a blend of:

  • Administration fees
  • Platform charges
  • Transaction and governance fees
  • Fixed member fees or AUM-based pricing

It’s also important to understand what benefits are available to staff - and when. 

Many employers are drawn in by bells and whistles, only to find that perks only accrue after years of membership, which doesn’t align with the high mobility of the South African workforce.

 

The importance of an Employee Benefits Consultant

An experienced Employee Benefits Consultant is an invaluable resource in this process. They help benchmark fees, decode layered pricing models, and ensure your provider’s offering aligns with your employee’s needs.

More than that, they can help design and manage an employee engagement strategy around retirement benefits. This includes:

  • Determining optimal contribution levels
  • Navigating withdrawal rules
  • Running onboarding and education sessions
  • Conducting annual fund reviews

Their industry insights can help you avoid costly missteps and ensure that the Umbrella Fund you chose to participate in offers meaningful, measurable value.

 

A smarter way to support your people

In an economy where financial stress is widespread, a well-run and transparent retirement savings solution isn’t just a perk — it’s a necessity.

Offering an Umbrella Fund shows that you’re invested in your employee’s future. It helps you stand out in a competitive talent market, fosters trust, and ensures compliance.

It’s more than ticking a box. It’s about building a resilient, engaged, and financially secure workforce.