How longevity and wellness are reshaping retirement planning

Retirement in South Africa is at a crossroads. While the industry continues to grow, a sobering reality remains: the vast majority of South Africans are not financially prepared for life after work. “Various surveys from major industry players indicate that as many as 90 to 95% of people don’t have adequate retirement funding,” says Kenny Rabson, CEO of Discovery Invest. “It’s quite binary because there are those who are well-off with sufficient assets, and then a very large portion of the population who simply aren’t on track.”

Rabson explains that the local retirement industry operates across two major pillars: the institutional space, where employers manage pension and provident funds for their staff, and the retail space, where financial advisers help individuals invest through retirement annuities and preservation funds. “Both are huge industries,” he says, “but across the board, we’re seeing that individuals are carrying more of the risk for their own retirement outcomes.”

How the landscape has changed

That shift from defined benefit to defined contribution schemes, where individuals decide how much to contribute and how to invest, has fundamentally changed the retirement landscape. “With defined contribution, the risk sits squarely on the shoulders of the employee,” Rabson notes. “You’re choosing how much to save and where to invest, and just hoping that by retirement, the fund is of reasonable size. The man in the street is carrying all the risk.”

Adding to this dynamic are significant legislative developments, most notably the introduction of the two-pot system. “It has pros and cons,” Rabson acknowledges. “On the one hand, it gives people who are in real financial distress the ability to access funds. On the other, it risks people dipping into savings unnecessarily and damaging their long-term outcomes. But overall, it encourages more preservation and that’s positive for the industry over time.”

Other regulatory shifts, such as the recent changes to Regulation 28, are also reshaping how retirement funds are managed. “Reg 28 defines what assets can be held in a retirement portfolio,” says Rabson. “Managers now have more freedom, so for example, they can allocate up to 45% offshore. This means we’ll start seeing greater variability in returns between funds, as managers take different views on currency, asset class and geography.”

This, he believes, is a step in the right direction. “It’s positive that asset managers have the freedom to apply their best thinking,” he says. “And I think pressure will continue to build to evolve Reg 28 even further. Private markets, for instance, are becoming a much bigger part of the global investment landscape. If you’re only looking at listed equities, you’re playing in a shrinking part of the market.”

At the same time, tax considerations continue to influence how South Africans save. The annual cap of R350 000 on deductible contributions, Rabson notes, has had unintended consequences. “For high-income earners, it’s a real disincentive,” he explains. “They’re asking, ‘Why lock up my money if I’m not getting the tax deduction?’ So, we’re seeing more voluntary, discretionary investments being made outside of retirement funds.”

A change in behaviour is essential

The combination of legislative reform, shifting investment dynamics and persistent savings gaps makes one thing clear – South Africa’s retirement system is in flux. And while there are positive structural shifts underway, Rabson cautions that the biggest challenge remains behavioural. “The earlier you start saving, the better the outcome,” he says. “But for many young people, that’s difficult because they have debt, family responsibilities and short-term aspirations. Yet the cost of waiting is enormous. Start late, and the percentage of your income you need to save skyrockets.”

Rabson believes that education and behavioural change remain the most pressing challenges in South Africa’s retirement landscape. “People need to understand the burden of retirement,” he says. “You must start early, save the right amount and resist the temptation to cash out your savings when you change jobs. That’s where financial advisers play a critical role. They can help people stay disciplined and make decisions that protect their long-term financial security.”

Economic pressures, however, often get in the way. High interest rates, inflation and stagnant wage growth are making it harder for South Africans to save. “It’s very correlated,” Rabson notes. “When interest rates are high and people are under pressure, they tend to stop their voluntary investments. They’ll keep their health insurance and life cover, but retirement savings are often the first to go. And what we’ve seen is that many never start again once they’ve stopped. That’s a real concern.”

Periods of crisis, such as COVID-19, have made this clear. “During the pandemic, almost all the major players offered contribution holidays,” he recalls. “Some people used those breaks and managed to restart later, but many didn’t. Events like that can have a long-term effect on retirement adequacy.”

The future of retirement 

As the industry continues to adapt to new regulation and shifting savings behaviour, another powerful force is quietly reshaping how financial advisers think about retirement: longevity. Advances in medicine and technology mean that people are living longer – sometimes far longer – than the financial plans designed decades ago ever anticipated.

“Longevity is something advisers have never really been used to thinking about,” says Rabson. “But in the future, they’ll need to plan around it very carefully. Medical technology is improving, and people are living longer, healthier lives. That means you can’t assume that retirement at 65 is still realistic for everyone. Financial plans have to stretch much further.”

This reality has significant implications for how individuals save, how long they work and how employers approach retirement policies. “Globally, we’re seeing a rethink of the traditional retirement age,” Rabson explains. “In South Africa, some companies are already becoming more flexible, allowing employees to work beyond 65, reviewing it annually instead of forcing retirement. But it’s a balance – you want to retain experience and skills, while also creating space for younger workers to enter the economy.”

Against this backdrop, Discovery Invest is pushing hard to reimagine retirement solutions by integrating its deep understanding of health, wellness and financial behaviour to create a more holistic approach. One of its latest innovations is the Lifespan Linked Income Plan, which builds longevity protection directly into its design.

“What’s unique to Discovery Invest,” Rabson says, “is that no one else has the health and wellness data we do. Discovery Health and Vitality have the largest datasets of this kind in the country and they’re so rich that even global research houses use them. That gives us the ability to build tools that truly personalise financial planning.”

Going beyond the traditional

Traditional retirement planning tools tend to focus on generic assumptions such as investment growth rates, inflation and contribution levels. Discovery Invest’s approach adds an entirely new dimension. “Our models take into account things like vitality status, chronic medication and lifestyle habits,” Rabson explains. “That allows advisers to plan for longevity risk in a much more accurate way. We can reward people for living healthier lives and those who do, end up funding their own incentives, because they grow larger retirement pots and draw down less in retirement.”

The Lifespan Linked Income Plan also reflects Discovery’s broader strategy to align incentives between members and the provider. “If you’re healthy and you manage your money well, we reward you,” says Rabson. “For example, someone drawing down R10 000 a month could receive an income boost of R5 000 if they’re a Diamond Vitality member. Over time, that creates the right behaviour so people are encouraged to save early, live well and draw down responsibly.”

Perhaps the most innovative aspect of the product is its built-in longevity underpin. From the age of 80, members begin receiving a guaranteed income for life which ensures their income never runs out no matter how much they withdraw, what funds they choose or what the market does. “It’s about peace of mind,” Rabson says. “People are understandably worried about outliving their money. This solution combines flexibility in early retirement with the security of a guaranteed income later in life.”

Discovery Invest’s vision for the future of retirement planning also centres on empowering advisers. Rabson is clear that personalised financial advice remains essential, but advisers need smarter tools to do it. “We’re building advanced tools for advisers,” he says. “For too long, retirement advice has been generic – a one-size-fits-all approach. But every client’s journey is different. We’re helping advisers create personalised plans that reflect an individual’s health, affordability, risk profile and other assets.”

This shift towards data-driven, individualised advice mirrors trends seen globally, where financial planning is becoming more predictive and behavioural. Just as medicine is moving towards personalised treatments, Discovery envisions financial advice that’s tailored to each client’s unique circumstances. “It’s the same principle,” Rabson says. “In healthcare, treatments are being customised for each person. Financial advice should be, too.”

“Ultimately,” Rabson concludes, “helping people live longer, healthier lives is good for them and good for their investments. Longevity isn’t just about living more years; it’s about making those years financially sustainable.”