Employers have a role to play in fostering savings culture in SA

A recent survey has highlighted the fact that South Africans wait too long to start saving for retirement, and that employers can do more to help foster a savings culture in South Africa.

According to the Old Mutual Savings Monitor, which surveyed 1000 South African households in the main metropolitan areas, working in both the formal and informal sectors, only 41% of South Africans working in formal employment in metro areas belong to a retirement fund.

It further revealed that only 54% of South Africans of pre-retirement age (45-59) have formal retirement savings.

In countries with such a low savings culture, there is an increased burden on the government to provide retirement assistance, which in turn, could increase the need to raise taxes. Households often underestimate their future liabilities, especially the cost of educating children and the cost of retirement. “Many South African households do not know whether their retirement provision is sufficient” says Seelan Gobalsamy, MD of Old Mutual Corporate.

Other key insights of the Savings Monitor are that recognition of the need to save for retirement does not necessarily result in changed savings behaviour, nor does the fear of not having enough savings at retirement.

Behaviour seems to be driven chiefly by individuals’ attitudes to organization, planning, financial knowledge seeking and a sense of optimism.

“Employers can therefore play a major role in encouraging savings, firstly by ensuring that a retirement vehicle is available to their employees, and secondly, by making every effort to convince them to join the scheme,” says Gobalsamy.

Gobalsamy says many employers do not offer retirement funds to their employees because they perceive them as being costly, complicated and time consuming. “However, there are options, such as umbrella funds, which address many of these concerns.”

Contributing to a retirement fund is often seen as a luxury by South Africans. Basic necessities such as food, housing, education and medical expenses obviously come first.

“However, a fair number of people who can afford to contribute towards retirement savings, choose to spend their extra income on discretionary items such as new cars, eating out and luxury items. It is these people whom employers need to be communicating with about the importance of saving for retirement,” suggests Gobalsamy.

Employers have the option of structuring retirement schemes to allow for variable contribution rates by employees. For example, employees can be given the option of selecting a monthly contribution rate of either 15% or 5% of their monthly salary.

People generally need to save around 15% of their monthly salary over a period of up to 40 years in order to retire comfortably.

While affordability obviously plays a role, with younger employees tending to earn less than their older colleagues, there is also an element of apathy amongst younger people who perceive retirement as something to be worried about sometime in the future.

Gobalsamy believes employers can play a much bigger role in encouraging especially younger employees to start contributing towards their retirement as early as possible. “Financial education programmes are one of the many tools employers can make use of to do this. Providing these tools will improve the employees’ perception of the employer’s care for their well-being, which can improve retention of key staff. It can also be a draw card to offer these benefits when recruiting new employees,” he says.