Auto-Enrolment Is Coming: What South Africa's Next Retirement Reform Means for SMEs
Why saving is about to become the default, and what employers need to prepare for.
While the two-pot framework (implemented in 2024) was designed to reduce early withdrawals and improve long-term preservation, it did not solve one fundamental issue: a significant portion of our workforce still does not belong to any retirement fund at all.
According to the National Treasury, roughly 30% of formally employed workers are not members of a retirement fund, largely because participation remains voluntary.
This is where auto-enrolment enters the policy discussion.
Treasury has positioned auto-enrolment as the next logical step in the retirement reform: Instead of choosing whether to join a retirement fund, employees would be automatically enrolled, with the option to opt out.
In simple terms: saving becomes the default.
The Retirement Reform Path
Over the last decade, policymakers have been working to strengthen the retirement savings landscape:
- Two-Pot System: Implemented in September 2024, this reform split retirement savings into an "accessible" portion and a "preserved" portion. The goal was to help members balance short-term financial pressures with long-term retirement needs.
- The Retirement Coverage Gap: Treasury recognised that the preservation reform does not address non-participation. A large portion of the workforce remains outside retirement funds, especially younger employees and those in smaller firms.
- Auto-Enrolment as a Next Logical Step: In Encouraging South African households to save more for retirement, National Treasury outlined future retirement reforms, including auto-enrolment or mandatory enrolment for informal and formal workers alike.
Auto-enrolment aims to address this by making participation the default for eligible employees, requiring them to opt out rather than opt in. This simple shift has proved transformational in other countries like the UK, where auto-enrolment dramatically increased coverage and helped normalise saving for retirement as part of employment.
Why Defaults Matter (And Why Opt-Out Still Works)
A common question is: "If employees can opt out, will this really change anything?"
Yes, and behavioural economics explains why. When people are faced with complex financial decisions, e.g., contribution rates, tax implications, investment choices, many simply delay. Not because they don't care, but because it feels overwhelming.
When enrolment requires action, large numbers of employees never get around to it. But when enrolment is automatic, most people stay in.
This isn't about forcing behaviour. It's about recognising inertia. Humans tend to stick with the default option, especially when decisions feel technical or long-term. Auto-enrolment leverages that reality in a positive way.
Globally, this approach has significantly increased retirement participation rates.
Why This Matters to SMEs
At first glance, this feels like a policy issue that affects employees more than employers.
But there are clear business implications.
Retirement participation is becoming part of "standard employment": For many professionals, being part of a retirement fund is not a luxury benefit; it is a baseline expectation of formal employment. As participation becomes more normalised through regulation, employers without structured retirement offerings may appear less competitive or less established.
Financial insecurity has workplace consequences: Low retirement coverage contributes to long-term financial stress. Financially stressed employees are more likely to seek early withdrawals, request salary advances, and experience productivity strain linked to financial pressure.
Operational readiness will matter: If auto-enrolment becomes mandatory, SMEs may need to automatically enrol eligible employees, facilitate payroll deductions, manage opt-out processes, and track compliance and reporting. For larger corporates, this is an extension of existing systems. For SMEs, it can quickly become an administrative burden, unless the right infrastructure is in place.
Why This Reform Is Directionally Positive
From a national perspective, greater retirement participation means:
- Stronger household financial resilience
- Reduced long-term reliance on state support or support from younger generations
- More predictable retirement outcomes
For SMEs, it levels the playing field. If retirement participation becomes standardised, small businesses are no longer at a structural disadvantage when competing with larger firms that already offer sophisticated benefit structures.
Preparing for What's Coming
Legislation will likely take time to finalise and phase in. But the policy direction is increasingly clear: voluntary participation has not achieved universal coverage. Defaults are powerful, and Treasury knows it.
For business owners, the question isn't whether auto-enrolment is good or bad. It's whether your systems will handle it smoothly when it arrives, and when you should start preparing for it.
Businesses that already have:
- Digitised onboarding
- Structured payroll integrations
- Flexible benefit administration systems
…will transition far more smoothly than those relying on manual processes.
At MyBento, we closely track policy developments like this because regulatory shifts eventually become operational realities for employers. Our role is to make those transitions seamless when they arrive.
