Advisers key in improved retirement outcomes
Employee benefits consultants, financial advisers and financial planners intent on advising retirement fund members towards sustainable retirement outcomes will have to overcome a widening trust deficit, and step into the savings process much earlier. Sanlam Benchmark 2024 has flagged the growing distrust among consumers in the country’s financial institutions, financial sector regulators and government policymaking as a major concern alongside the trend of delaying seeking financial advice until retirement.
“Pensioners, in particular, have expressed deep-seated concerns about the security and management of their retirement funds, exacerbated by controversial policy reforms and inadequate transparency,” wrote Nzwa Shoniwa, Managing Executive of Sanlam Umbrella Solutions, in his contribution to the latest Benchmark. His chapter, titled ‘The trust crisis’, is opportune in a country rocked by multiple financial scandals, not least of which BHI Trust, Steinhoff and VBS Bank. In this context, it is not surprising that many survey respondents singled out corruption as the root cause of the country’s problems.
“Our Benchmark findings revealed a jaded nation with eroded confidence in the country and its financial institutions; stakeholders are calling for more stringent oversight and better governance to restore faith and address the trust crisis head on,” Shoniwa wrote, before acknowledging the optimistic tailwinds introduced by the post-election Government of National Unity (GNU) solution.
Eroded confidence and trust among pensioners
Under the heading ‘eroded confidence and trust’, the Benchmark found that 60% of pensioners do not believe South Africa’s challenges will be resolved within their lifetime while 66% of people said they felt financially vulnerable or exploited. No surprises there, dear reader.
Your writer reckons Benchmark 2024 is an excellent resource for financial advice-focused intermediaries to find hooks for upcoming adviser-client interactions. It shines light on the myriad juxtapositions that exist in their clients’ lived experience of saving for retirement. Imagine advising in an environment where more than half (54%) of the pensioners surveyed are worried about not having sufficient funds to live comfortably, while a similar number fear they will run out of funds during their lifetimes. This fear can be further assessed in light of the one-in-five survey respondents who said they had no investment or savings beyond what was in their company retirement fund.
The spread of investment and savings vehicles used by those who are supplementing their formal retirement fund does little to bolster confidence in retirement outcomes either, as the list is dominated by exposures to low-risk savings accounts (39%); retirement annuities (26%); fixed deposits (23%); and stokvels (21%). Only 13% of respondents indicated that they used shares and unit trusts, though there was no indication of the risk-return preferences in this space. The growing interest in non-traditional savings and investment was noteworthy, with the National Stokvel Association of South Africa (NASASA) estimating that over 11 million South Africans are now members of the R45 billion (and growing) stokvel industry.
Reliance on default financial decisions
The Benchmark confirmed retirement savers’ reliance on defaults at critical financial decision points. In comments to the survey launch, Sanlam revealed that where members had a choice, 87% of employer fund members and 82% of umbrella sub-fund members deferred to trustees’ decisions. Around three in four funds favour life stage strategies for these defaults, with 79% of employer funds and 65% of umbrella funds saying that life stage investing was “explicitly aligned with their trustee-endorsed annuity strategies”. Per the report, these statistics “show the need for strong defaults and illustrate members’ reliance (and trust) on decisions made by trustees as well as joint forums”.
The survey findings dealing with financial stress will resonate with financial advisers and planners who spend countless hours in face-to-face interactions with their clients, both in the run up to retirement and throughout their pension years. According to Sanlam, back in 2019, respondents were most concerned about the impact of debt and debt servicing on their financial affairs; by 2024 this had morphed into a dual concern over access to healthcare benefits and the adequacy of retirement savings. In somewhat of a contradiction, the Benchmark also showed that close to half of all respondents were struggling with debt.
PS, your writer, who has long been stressed about healthcare benefits affordability in retirement, reckons the National Health Insurance (NHI) solution will expand the worry to one of affordability plus availability. Three decades from today, you may struggle to find a healthcare solution provider even in the unlikely event you can afford same.
Impact of financial stress on mental health
The intersection of finance- and health-related wellbeing is worth exploring further. Per Benchmark 2024, 80% of South Africans said financial stress was impacting their mental health. Specifically, around 39% of Sanlam Umbrella Fund participating employers said they had experienced an increase in absenteeism because of anxiety, stress or other mental health issues. “The combined total cost of mental-health related absenteeism and presenteeism is equivalent to 4.8% of South Africa’s GDP,” wrote Santam, citing a paper by Schoeman, 2022. “And that means South Africa has one of the highest costs of mental illness in the world”.
For more on the retirement savings landscape, this writer flipped to the survey chapter titled ‘Understanding employee contributions and costs’. It seems the average total contribution as a percentage of pensionable salary to standalone pension funds declined from 17.53% in 2022 to 17.30% in 2024, the latter made up of employer contributions (10.00%) and member contributions (7.30%). The opposite occurred in the umbrella fund space, where total contributions grew from 14.65% in 2022 to 15.67% in 2024, with 8.53% from employers and 7.14% from employees.
Melissa Reddy, Senior Investment Specialist, and Adarsh Sundarparsad, Actuarial Specialist at Sanlam Corporate Investments lamented that “for the majority of South Africans, their retirement savings are their primary, if not only, form of savings” before adding that “this had far-reaching consequences for members’ retirement outcomes in the light of the two-pot go-live date in September”. The top concern here is that the number of survey respondents who indicated they would seek immediate access to their savings pot has risen from 31% in 2022 to around 60% this year.
The risk in dipping into your savings pot
“Accessing savings now could compromise accumulated savings at retirement and mean an individual does not have sufficient funds later to cover additional health costs, for example,” Sanlam warned, opening the door for a discussion around financial device. Shoniwa said that “navigating the delicate balance between immediate financial relief and long-term retirement security will need financial advice and education as key enablers for making informed decisions and understanding the long-term impact of withdrawals”.
But advisers will have their work cut out for them, if the 2024 survey findings are anything to go on. A staggering 53% indicated that they relied on Google and search engines for information on financial products, followed by product providers’ websites (30%); and human resources departments (27%). Only 27% indicated that they used their own or the funds’ advisers or brokers. And across the survey sample, 47% of respondents said “no” in response to the question ‘Do you make use of a personal financial adviser or broker to help you make decisions regarding your retirement savings and investments?’
Advisers popular among plus-65s
“The use of financial advisers is more prevalent among pensioners, with 59% of retirees indicating that they had consulted a professional financial adviser for retirement advice and guidance [and] a further 54% confirmed that they still use a professional financial adviser even though they are retired,” the report states. And then, something FAnews readers can live by: “High-quality financial advice is a key tool to increasing trust within the financial services industry, and we believe it is currently being under-utilised”. If only we can expand this post-retirement advice appetite across age groups.
Image how different South Africa’s retirement outcomes would be if you, the financial advice community, could guide savers from their first pay-check to retirement and beyond. Success in this endeavour would massively increase the number of individuals reaching 60- or 65-years with enough capital to make it through retirement, and leave a legacy to their beneficiaries at the end. And that, in turn, would mean financial advisers and financial planners would have a much bigger client pool to advise into.
Writer’s thoughts:
Benchmark 2024 flags the lack of early financial advice as a real constraint in the South African retirement outcomes paradigm. How can financial advisers overcome the trust deficit and better engage with savers to secure their financial futures? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
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