SA women caught in savings crosshairs due to hidden retirement cost of maternity

The consequences of inadequate retirement savings for women can be severe. Photographer: Armand Hough, Independent Newspapers

The consequences of inadequate retirement savings for women can be severe. Photographer: Armand Hough, Independent Newspapers

Published Nov 24, 2023


By: Samantha Jagdessi

South Africa’s dual retirement savings structure presents a growing challenge for women during maternity leave, as they often find their contributions to the employer-backed retirement fund dwindling or pausing entirely, negatively affecting their ability to save for retirement.

The consequences of inadequate retirement savings for women can be severe.

Insufficient funds may necessitate reliance on state pensions as the primary source of retirement income, which might not be adequate to maintain a comfortable lifestyle. Consequently, many women face financial uncertainty and an elevated risk of experiencing economic challenges in their later years.

The situation only amplifies an already gender-skewed working world. According to the Statistics South Africa Quarterly Labour Force Survey for the third quarter of 2023, South Africa’s labour force participation rate increased to 60.2% in the third quarter of 2023 from 58.3% recorded in the third quarter of 2022, an increase of 1.9% point year-on-year.

The labour force participation rate for women stood at 55.2% compared with 65.2% for men, a gap of 10 percentage points. Only 55.2% of women of working age in South Africa participate in the labour force either as employed or looking for work.

During maternity leave, the employee’s contributions to the employer-sponsored retirement fund may decrease or temporarily cease, impacting the overall growth of their retirement savings. This reduction in contributions, combined with the potential loss of employer contributions, can lead to a substantial gap in retirement savings.

Maternity leave and female retirement preparedness are interconnected aspects that significantly affect women's financial security and overall well-being. The savings structure, while comprehensive, has inadvertently placed women, especially those on maternity leave, in a precarious position. Factors like wage disparities, extended life expectancies, and breaks for caregiving only deepen the chasm.

Recent data from the 2021 RemChannel Employee Benefits survey provides sobering insights. A troubling 23% of participating employers don’t offer entirely paid maternity leaves, leading to halted benefit deductions during that two to four-month span. More so, 25% only partially compensates, translating to truncated retirement contributions during the leave, with payouts ranging between 30% to 50% of regular earnings.

The sanctity of maternity leave, a period essential for mother-child bonding and postnatal recovery, brings unexpected fiscal repercussions. During this break, women often find their contributions dwindling or pausing entirely with serious ramifications, particularly a potential slump in their cumulative retirement savings.

This issue isn’t isolated. Women are already disadvantaged compared to their male counterparts due to wage gaps, caregiving career interruptions, and longevity. On average, women often earn less than men, so they have fewer resources to save for retirement. Women also tend to have more career interruptions, often related to caregiving responsibilities like maternity leave and raising children. These interruptions can impact their ability to accumulate retirement savings and qualify for employer-sponsored benefits. Women also typically have a longer life expectancy than men, meaning their retirement savings must stretch further.

Addressing the Challenges

Solutions are on the horizon. Firstly, progressive employers are now re-evaluating their maternity leave policies, considering sustained or even augmented retirement contributions. Innovations like voluntary contributions and adaptive arrangements offer promise.

Secondly, the empowerment of women through improved financial literacy is paramount. Comprehensive educational resources and active promotion of retirement planning could be vital to narrowing the gender retirement gap. Thirdly, national policymakers can re-examine the existing retirement framework. By refining the system, they can better shield women during maternity leave, ensuring a brighter financial future.

Other initiatives such as flexible work arrangements that reduce the need for extended career breaks and spousal involvement that encourages shared caregiving responsibilities and financial planning within households, should also be considered.

The dialogue around women, maternity leave, and retirement savings in South Africa is pressing. As the nation grapples with these complexities, it remains to be seen how policy and society will respond, forging a path toward equality and financial security for all.

* Samantha Jagdessi is the head of consulting strategy and best practice at Old Mutual Corporate Consultants.