Sanlam: Results of national retirement study reveal contributions declining steadily

Retirement Study: Employees and Employers Contributing Less
Annual Sanlam survey reveals need to institute SA savings culture and more communication about retirement funding

As the government seeks to increase national savings through a proposed framework of mandatory individual contributions, the retirement fund industry's benchmark study from Sanlam Employee Benefits (SEB) has revealed a number of interesting trends, including a reduction in the average contribution of both South African employers and employees to retirement funds. 

In the past year, the amount of employee and employer contributions to pension funds has declined by almost a full percent per annum with the total provision for retirement now at only 11.3 percent per annum.  While the industry transition from defined benefit to defined contribution retirement schemes has resulted in expanded member choice among funding options, it has also led to an alarming reduction in the total average contribution to retirement. 

"The expectation is that the government's multi-faceted social security reform will do much to address South Africa's negative savings trend," said Elias Masilela, survey co-author and chief strategist for financial sector developments with SEB.   "However, as the country's retirement landscape expands, further collaboration among industry, labour and government will be essential to ensure members understand the value and process of saving for retirement." 

"In the current environment, long-term retirement planning has given way to short-term consumption," said Deon Booysen, survey co-author and executive head of client solutions at SEB.  "It seems that employees are opting for more ake-home pay rather than maximising their contributions to retirement provision."

Released as part of the annual SEB symposium taking place June 26-28 in Cape Town, Durban and Johannesburg, the retirement fund industry's most comprehensive annual survey offers some other revealing statistics, including

* 54 percent of funds now offer members life-stage solutions (up from just 5 percent in 2004).  As the cost of living increases, more retirement fund members are maximising their exposure to real growth assets to improve their chance of retiring comfortably.

* Only 10.5 percent of retirement funds have a formal investment policy to invest a proportion of assets in socially responsible investment (SRI) portfolios. 

*Almost 60 percent of funds are considering paying for financial education of members to address the perceived lack of understanding of the information provided to members. 

"Given the social and economic structural backlogs in South Africa's economy, the level and participation of retirement funds in SRIs remain woefully low.  The expectation is that with the governments envisioned national fund there will be the requisite asset base and influence to invest in crucial infrastructure projects in order to drive further economic development and job creation," added Masilela.

According to Booysen: "Although the majority of funds (93 percent) provide an annual benefit statement, more resources need to be devoted to educate general staff so that they are able to make responsible investment decisions and better understand all of the benefits available to them and their families.  Online tools are proving increasingly popular though with more than 65 percent of funds now using an internet/intranet facility to provide members with portfolio information and other fund details." 

Methodology
The 2007 Sanlam Survey was conducted by the independent market research agency BDRC, by means of face-to-face interviews among 200 principal officers of retirement funds. Respondents were selected at random to represent small (<100 members), medium (100-500 members), large (501-5000 members) and very large funds (5 001+ members) in South Africa, including pension, umbrella and provident funds, all structured on a defined contribution basis.  Preceding the quantitative research, a series of 30 face-to-face interviews with financial intermediaries consulting to retirement funds, principal officers and trustees were conducted to arrive at a relevant set of questions and identify new trends in the industry.