SA women and the hidden retirement cost of maternity leave

By: Samantha Jagdessi, Head of Consulting Strategy & Best Practice at Old Mutual Corporate Consultants

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, says Samantha Jagdessi, Head of Consulting Strategy & Best Practice at Old Mutual Corporate Consultants.

“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,” says Jagdessi.

The situation only amplifies an already gender-skewed working world. According to the Stats SA Quarterly Labour Force Survey, the most recent labour force participation rate for women stood at 55,2%, compared to 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 wellbeing. 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,” says Jagdsessi.

According to recent data from the 2021 RemChannel Employee Benefits survey, 23% of participating employers don’t offer entirely paid maternity leave, leading to halted benefit deductions. More so, 25% only partially compensate, translating to truncated retirement contributions, with payouts ranging between 30% and 50% of regular earnings. 

“The sanctity of maternity leave 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,” she says.

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. Women also typically have a longer life expectancy than men, meaning their retirement savings must stretch further. 

Addressing the challenges 

Jagdessi notes that solutions are on the horizon. Firstly, progressive employers are now reevaluating 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 reexamine 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,” Jagdessi concludes. 

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