The fact that millions of South African taxpayers withdrew R43-billion from their accessible retirement savings under the Two-Pot System in the previous tax year, and many are already dipping in again this year, clearly shows that employees need real-time financial relief. 

In light of this, it is time that employers acknowledge the landscape of employee financial needs has changed, and with it, so must their approach to employee benefits. The traditional one-size-fits-all remuneration model is outdated. The Two-Pot system highlights that employees value access, choice, and control.

The Flawed Paternalism of Retirement Contributions

For years, employer retirement contributions have been positioned as a cornerstone of financial well-being, a paternalistic safety net designed to secure an employee’s future. While this remains true for many, the Two-Pot system has revealed a disconnect between intent and reality.

Employees are now able to access a portion of their retirement funds annually, and many are choosing to do so. This is not out of financial recklessness, but out of necessity as employees find themselves in a sluggish economy, where rising living costs and debt obligations outpace wage growth. Unfortunately, mandatory retirement savings may offer little comfort in the present and, in fact, may inadvertently benefit SARS (through tax on withdrawals) and fund administrators (through additional fees) more than the employee.

Rebalancing the Remuneration Equation

Rather than rigidly enforcing high retirement contribution rates, employers would be better served by re-evaluating the purpose and design of their total reward offering.

For some employees, particularly younger staff or those under financial strain, it may make more sense to reduce employer retirement contributions to the minimum threshold and divert those savings into their take-home pay. This allows for more financial breathing room and real-time impact without compromising future options. Remember, employees can always choose to make voluntary top-ups.

On the other hand, employees who are focused on long-term savings should be given the tools to maximise their contributions through matching schemes, voluntary increases, and flexible benefit elections, all designed to optimise tax deductions and enhance their retirement outcomes.

The objective? A “sweet spot” that offers each employee the right balance of cash flow and savings, aligned with their life stage, financial goals, and tax profile.

Time for a Full Benefits Review

The introduction of the Two-Pot system presents a unique opportunity for organisations to re-evaluate their entire suite of employee benefits. Employers should be asking:

• Are our retirement contributions still fit for purpose?
• Is our remuneration structure flexible enough to cater for different employee needs?
• Are we maximising tax efficiency for both the business and our employees?
• Are we offering optionality in risk and healthcare benefits?
• Have we aligned our payroll systems and policies to reflect this flexibility?

These questions are no longer just theoretical. They are practical imperatives in a modern employment landscape. The future of remuneration is customisation, not uniformity.

Flexibility Does not Mean Complexity

One of the biggest misconceptions is that introducing flexibility creates administrative chaos. This need not be the case. With the right tools, policies, and technology, employers can offer structured choices to employees without adding layers of complexity.

From flexible risk and medical aid structures to voluntary retirement contributions and cash conversion options, organisations can craft a remuneration model that is dynamic, responsive, and legally compliant, while also reducing frustration among employees who feel locked into rigid benefit structures that no longer serve them.

A Strategic Call to Action

The message is clear: It is time for organisations to press pause and rethink.

By reconsidering the balance between retirement savings, take-home pay, and tax planning, employers can craft a more resilient, employee-centric remuneration strategy that serves both financial and human outcomes.

In today’s economy, flexibility is no longer a perk—it is a necessity. And those who act now will be the ones best equipped for the workforce of tomorrow.

Written by Tanya Tosen, Tax and Remuneration Specialist at Tax Consulting SA