Old Mutual launches Retirement Monitor
The results of the first Old Mutual Retirement Monitor 2010, which examines pre-retirement perceptions amongst working South Africans, was released today. The Retirement Monitor measures the confidence levels of full time employed metropolitan dwellers as regards to the financial provision they have made for retirement.
The Retirement Monitor includes measurements of how satisfied respondents are with their own financial readiness or provision for retirement at this point in time, given their age and the number of years they have to go until retirement.
According to these indicators, employees who are members of a retirement fund had a confidence level of 6.3 out of 10, far higher than the 4.8 recorded for those not belonging to a fund. According to Craig Aitchison, Managing Director Old Mutual Actuaries and Consultants, while the gap in the confidence levels between members and non-members is hardly surprising, it does illustrate the significant effect that contributing to a retirement fund can have on the ability to be financially prepared for retirement.
He adds that the Retirement Monitor, which will be conducted on an annual basis, will also be extremely beneficial in tracking the progress made by the pension fund industry in assisting South Africans to achieve their retirement savings goals.
The research also reveals that there is a direct correlation with personal income levels and confidence about financial readiness for retirement, with employees earning more than R40 000 per month scoring 7.2 versus the 4.7 for those earning less than R3 000 per month.
Another element of the Old Mutual Retirement Monitor was the measurement of members’ levels of engagement and attitudes to trustees and fund administration. The results reflected that members had a high level of both trust and confidence in their trustees, with confidence levels of 7.3 for each.
According to Aitchison, scores for trust and confidence in trustees were highest amongst fund members who were more engaged with their retirement funds. For example those who voted in trustee elections scored 8.3 in their confidence in trustees, while those who didn’t scored 7.1.
Aitchison says low levels of engagement and awareness by members on pension fund issues continues to be an area of concern. For example, 50% of members surveyed did not know or were unsure whether their fund offered member level investment choice.
The Old Mutual Retirement Monitor also focused on contribution levels to retirement funds and the perceived adequacy of these. “Worryingly, we found that 67% of members contributed less than 10% of their salary to their retirement fund each month. “This is particularly concerning, given that we estimate that employees need to contribute a minimum of 15% (including the employer contribution) over a period of 40 years if they want to have any chance of ensuring they will have sufficient savings at retirement to maintain their standard of living. The average contribution level of those who knew what their contribution to retirement savings is, is currently 11.7%
Finally, awareness of and attitudes to pension reform were measured. In this
regard, only 7% of members were aware of the key issues. “This again illustrates the poor levels of understanding that most members have about what is typically, their primary source of retirement savings.”
OMAC Actuaries and Consultants has launched its inaugural 2009/2010 OMAC Member Retirement Confidence Indicator (MeRCI), which indicates how much confidence members of occupational retirement funds have in their fund’s ability to provide adequately for their needs.
“The MeRCI allows us to understand how well the industry is doing in providing for members, and what areas of private retirement provision require attention,” says Craig Aitchison, MD of OMAC Actuaries and Consultants.
He says that as it will be compiled on an annual basis, movements from year to year will also show how the industry is progressing in meeting members perceived needs. Individual funds can then conduct their own studies and use the index as a benchmark for comparison.
“In addition, the index also provides us with a way to measure the impact of the retirement reform proposals on member confidence as it unfolds,” says Aitchison.
The MeRCI is calculated based on 16 different factors. These factors cover how members feel about various aspects of their funds and the extent to which they believe their fund will meet their benefit needs, as well as how the needs of current pensioners have been met.
The scores for the 16 factors are averaged to give an index value from 1 to 10, where 1 means extremely low confidence and 10 means extremely confident.
The 2009/2010 MeRCI, which is based on data collected in late 2009, recorded an overall score of 6.1, showing that members do have a degree of confidence in their retirement needs being met through their funds, but that there is still room for improvement.
The individual questions posed to retirement fund members revealed that they have a high level of confidence in trustees, even though many do not actually know who their trustees are, where their money is invested or whether they are on track to have enough in retirement.
Aitchison says that specific areas that can be targeted for improvement include:
* Helping members to better understand their actual financial needs as well as what their funds will be aiming to provide.
*Employers looking for ways to provide their employees with retirement savings options
* More transparency on how the retirement fund will achieve the desired level of investment returns.
* Greater ownership by members of their retirement savings, as members bear the risk of insufficient benefits. This may also lead to higher participation by members in their funds.
* Continued focus on encouraging preservation. Lack of preservation is a key driver of members reaching retirement with insufficient benefits
