Two-pot system: employers need to consider women

Reports suggest that women are more likely than men to use their retirement savings to support their families in emergencies. Picture: Freepik

Reports suggest that women are more likely than men to use their retirement savings to support their families in emergencies. Picture: Freepik

Published Aug 16, 2024

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With the implementation of the two-pot retirement system in September 2024, experts are urging employers to apply a gender-sensitive lens to their employee engagement strategies to ensure equitable outcomes for all employees.

“Treating all people equally doesn’t necessarily result in equal outcomes. Traditional gender roles and societal expectations can exacerbate the pressure on women to prioritise family needs over their own financial security,” says Samantha Jagdessi, head of advice and best practice at Old Mutual Corporate Consultants. “Employers have a key responsibility to educate women employees on the new system and to understand the social nuances and potential implications for women.”

Reports suggest that women are more likely than men to use their retirement savings to support their families in emergencies.

During the Covid-19 pandemic, for example, Australian women were found to withdraw a greater proportion of their retirement savings than men, which has now resulted in a more significant gender gap in retirement savings.

Michelle Acton, retirement reform executive at Old Mutual, says the introduction of the two-pot system is expected to help improve retirement outcomes for men and women. The system introduces partial compulsory preservation while also allowing some flexibility for fund members to access their retirement savings before retirement. Data-driven analysis by Old Mutual suggests that the system could enable workers who start saving at age 25 and continue to work for 40 years to amass retirement savings two to three times greater, on average, than those accumulated under the old system.

However, Lindiwe Sebesho, managing director of Remchannel, notes that women often start at a disadvantage due to the gender pay gap and career breaks due to caregiving responsibilities, which requires employers to apply a gender lens to their current employee value proposition.

“Remchannel remuneration trends indicate that although female representation has increased, female pay in South Africa generally lags behind male pay by 18% in the top decile and 25% in the bottom decile. Furthermore, the 2023 Remchannel Employee Benefits survey indicated that only 59% of companies pay employees who are on maternity leave their full salary and benefits.

“Many women in South Africa still take a significant pay cut during maternity leave. Their only guaranteed income during this period is through the Unemployment Insurance Fund, which is not nearly enough to address their needs at this time,” Sebesho says.

She says societal pressures and traditional conditioning could lead to greater expectations for women to access the savings portion of their two-pot savings now, when they have children and in times of emergency. Frequent or substantial withdrawals from the savings pot will substantially diminish their accumulated savings at retirement.

Sebosho believes employers can help mitigate these disadvantages by providing employee benefits solutions tailored to women’s needs and creating alternative, less expensive liquidity options than to withdraw from their retirement savings. These can include early access to salaries, “soft” loans with reasonable interest rates and flexible repayment schedules, and a more flexible approach to retirement fund contributions.

Paradoxically, research by Old Mutual Corporate reveals that 40% of members will consider increasing their allocations to their retirement fund under the two-pot system after September

“This suggests that the perceived opportunity cost of investing in a retirement fund is now reduced, and members see the value of investing more, as they can access this money in an emergency,” says Jagdessi.

She says retirement funds could allow women to make flexible contributions based on their changing income levels and career trajectories. “This could involve reducing contribution rates or making catch-up contributions after career breaks or maternity leave,” Jagdessi says.

Jagdessi, Acton, and Sebesho says employers should also consider:

[blob] Paying women equitably. Robust implementation of fair and responsible pay policies, ensuring equal pay for equal work, can help bridge the ability to contribute to retirement savings between men and women.

[blob] Offering investment strategies that address women’s needs. Given women’s longer life expectancy, trustees should focus on long-term investment strategies that ensure stability and sustainable income.

[blob] Boosting financial education for all, especially women. Employers must provide financial planning with a gender lens. Providing financial education that addresses these concerns can help women build confidence in managing their retirement savings.

“The implementation of the two-pot retirement system in South Africa represents a significant shift in retirement planning,” Jagdessi says. “Applying a gendered lens to this and other retirement policies is crucial for addressing the financial disparities faced by women. By recognising the unique challenges and implementing specific employee value creation strategies, South Africa can move towards a more equitable and inclusive retirement system.”

PERSONAL FINANCE