Blue Chip Issue 96

BLUECHIPFINANCIAL

BLUECHIPFINANCIAL PLANNING | RetirementFrom policy to people: how theTwo-Pot System is reshaping retirementRob Southey, head of asset consulting at Momentum Consultants & Actuaries, reflects on how the Two-PotSystem is driving the retailisation of South Africa’s institutional retirement landscape.Over the past year, the introduction of the Two-PotRetirement System has sparked one of themost meaningful shifts we’ve seen in the SouthAfrican retirement landscape. As someone deeplyembedded in this space, I’ve observed not only how thesystem itself has changed, but how it has fundamentallyreshaped the way we think about retirement, savings andmember engagement.The Two-Pot System has not only demystified retirementfor many South Africans, but it has also accelerated the needfor personalised, flexible solutions. What was once a staticoffering has transformed into a dynamic system with real-liferelevance, offering choices that carry character, intention andindividual value.This shift demands a deeper level of engagement from allstakeholders. Trustees are being called to step forward. Nolonger is it enough to administer benefits at arm’s length;trustees must now serve as guides, helping members navigatea complex, fast-changing market where one-size-fits-all nolonger applies. A nuanced, member-centric approach isessential. Every individual’s life stage, financial reality andpersonal goals must be considered when designing benefitstrategies and support tools.Encouragingly, some retirement providers have embracedthis transformation. We now see product suites designedwith flexibility at their core, offerings that grow and adaptalongside employees as they progressthrough their careers. Comprehensive benefitpackages, aligned with the structure ofthe Two-Pot System, offer real-time valueand support during major life events such asillness, disability or death.Trustees arebeing calledto stepforward.Rob Southey, Head: Asset Consulting,Momentum Consultants & ActuariesYet this new flexibility also comes with responsibility.Members must take ownership of their decisions. Whileproviders and employers can create accessible, inclusive tools,it is ultimately up to individuals to budget, plan and engage withtheir options. Over the past 18 months, the industry has investedheavily in education, from brochures and videos to multilingualresources, ensuring that the basics are widely available andunderstood. The Two-Pot System is not a bank account or acredit facility, and it should not be treated as such. It is a carefullystructured framework designed to balance short-term needswith long-term security.What was once a staticoffering has transformedinto a dynamic system.Behavioural patterns over the past year have shown a risingrisk: repeat withdrawals from the accessible pot. This trendthreatens the very goal of retirement preservation. However,with proper budgeting and financial planning, the pressure towithdraw large sums annually can be reduced, allowing membersto build more stable, resilient retirement outcomes.In parallel, the retirement ecosystem itself is becomingmore inclusive. In a country with 12 official languages, forwardthinkingproviders are translating products and educationalcontent into multiple dialects, empowering individuals andfamilies to understand and engage with offerings that mayhave previously felt out of reach.This evolution from compliance-driven administration topeople-centred experience marks the retailisation of SouthAfrica’s retirement industry. The system is no longer static orrigid. It is personal, dynamic and designed to meet people wherethey are. The transformation is not only welcome but necessary.As the financial lives of South Africans grow more complex,their benefit solutions must evolve with them.Looking ahead, the retirement industry has a clearimperative: continue building on this momentum, deepeningthe focus on individualised support and ensuring thatretirement planning remains accessible, empowering and fitfor-purpose.The Two-Pot System may have been the catalyst,but the long-term success will lie in how holistically andhumanely the system continues to serve those it was built for.52 www.bluechipdigital.co.za

FINANCIAL PLANNING | RetirementBLUECHIPWhy do South African retirementfunds appear hesitant to investin infrastructure?The recent Institute of Retirement Funds Africa (IRFA) conference raised important discussions about theextent to which South African retirement funds are investing in infrastructure projects.While the retirement fund industry acknowledges thecritical need to support the expansion and upgradingof infrastructure, including transportation, energy,water and sanitation, etc, South Africa’s retirementfunds hold substantial capital that could potentially meet thesedemands. Yet, we are not seeing a rush of funding directed towardsinfrastructure investments. Why is this the case?Before addressing this question, it’s essential to first examinewhether there are genuine, viable infrastructure investmentopportunities [1] in South Africa that align with the investmentobjectives of retirement funds.Infrastructure pipeline. There are a significant number oflocal projects that require funding. Included in the figure belowis an overview of the number and rand value of these projects –separated by sector. It is difficult to know exactly what proportionis investable (“bankable”) for a retirement fund, but engagementswith the industry suggest this number to be about 20%. Assumingthe 20% proportion, that means that there is a funding need ofbetween R75-billion and R100-billion. If a higher proportion isbankable, then the investment need increases.Infrastructure investment plan per sectorSource: www.infrastructuresa.org, Momentum Investments, 2024.Given the above, if there are genuine investment opportunitiesin infrastructure, why then are we not seeing assets beingmobilised into it? In answering this question, we focus on threekey areas. These are:• Regulatory conflict• Lack of alignment and consistency• Infrastructure specific factors1Regulatory conflictSouth Africa’s legislative framework often experiences conflictsand a lack of alignment between different pieces of legislation.This can complicate governance and regulatory processes. Hereare some key points regarding the conflicts between nationaland provincial legislation:It’s essential to first examinewhether there are genuine,viable infrastructure investmentopportunities.Constitutional framework. The South African Constitutionprovides a mechanism for resolving conflicts between nationaland provincial legislation. According to Section 146, nationallegislation prevails over provincial legislation if it aims tomaintain uniformity across the country or address issues thatcannot be effectively managed by provinces individually.Environmental legislation conflicts. Specificconflicts arise in areas like environmentallegislation, where national and provincial lawsmay differ. This can lead to confusion regardingcompliance and enforcement, as stakeholdersmust navigate potentially contradictoryregulations.Lack of alignment and consistencyContradictory legislation. Various pieces of legislation, such asthe Public Finance Management Act (PFMA) and the MunicipalSystems Act (MSA), sometimes contain contradictory requirements.For instance, both acts mandate feasibility studies beforeforming public-private partnerships (PPPs), but they prescribedifferent time frames for these studies – approximately twoyears under the MSA and six months under the PFMA.This inconsistency can lead to varied interpretations andimplementations of the laws.Implementation challenges. The lack of functionalwww.bluechipdigital.co.za53