South Africans not achieving retirement savings goals

Few South Africans reach their savings goal, largely through a combination of ignorance, neglect and poor discipline yet we are constantly reminded to consult with a professional adviser as soon as we start earning an income in order to achieve our retirement goals.

However, the question is to what extent does the public take this advice?

If we are to review Sanlam’s annual Retirement Benchmark Survey, it is evident that not many of us do. While many may see these studies as subjective, Sanlam included data from a core group and an affluent group in this year’s study in an attempt to identify trends from the widest range of the population as possible. The core group was made up of 250 participants while a booster group of 50 pensioners represented the affluent group. Sanlam defines an affluent retiree as a person with a retirement income in excess of R25 000 per month.

What option do people go into retirement with?

According to the survey, 63% of the respondents in the core group indicated that they would have preferred the complete freedom of choice in the way that their cash is given to them at the retirement age, without any restrictions from trustees. The rest of the core sample group said that they would like some level of engagement or recommendations from trustees. 

The opposite was true with the booster sample. In the booster sample it was evident that 38% of the pensioners preferred the freedom of choice while 62% of the participants showed confidence in considering any input from trustees. This shows that there is a trend in the value of advice that an adviser brings to the table. One would assume that the adviser engagement in the affluent group is higher than it is within the core group, therefore these participants do see the advantage in proper retirement planning.

Because of the high level of engagement with advisers, one would also assume that the booster group would be more educated on the retirement industry than the core group.

Do not let your clients face a troubled retirement

Retirees work hard during their life so that they do not have to worry about running out of cash during their retirement. However, retirement shortfall is a significant reality in the South African industry with a number of retirees possibly facing sleepless nights because of worrying about their cash running out.

The survey showed that the percentage of pensioners who believe that they have not saved enough capital to last them during retirement remained fairly consistent at 52.4% in 2014, which was slightly down from 53.4% in 2013, but still relatively high when compared with 2011 which at that stage represented 31% of respondents. Evidently, only 24% of the affluent group reported to not having saved enough funds, with 66% of them believing that they had enough capital saved to last them through retirement.

What is more concerning is the growth in retirement shortfall. The survey shows that 59.2% of retirees currently have a shortfall between income and expenses. This is significantly up from the 2013 figure which was 51%. In 2011, this figure was only 33.3%.

When asked how this was being dealt with, some retirees said that they were reducing non-essential expenses while others were cancelling private medical schemes at a time when it is most needed. While also cutting back on some of their expenditure, affluent individuals took a different approach in that the majority of them indicated that they were taking on a second career to supplement their income.

Pushing back the big day

There are some people who look forward to retirement while others dread the day and the inevitable culture shock that will hit the system. Because of retirement shortfalls and poor planning, people are being forced to extend their retirement age in an attempt to get a last cash injection before they ride off into the sunset.

The survey results also show that the core group’s retirement age increased slightly from 59 in 2013 to 60 in 2014, whereas the average period of contribution lasted 29.8 years in the 2014 survey compared with 28.5 years in the 2013 survey. This positive trend shows that individuals had saved longer towards retirement but clearly not enough when compared with the booster sample which shows approximately 33.2 years of long-term contributions.Employment began at the age of 22 for the core group of pensioners, which left a period of eight years of contributions that were unaccounted for.

The same trend is seen in the booster sample as formal employment began at an earlier age of 20.8 years, this also left approximately 6.96 years of contributions that were unaccounted for.

Putting a value on advice

One of the major bones of contention in the industry at the moment is that the Financial Services Board (FSB) is on a mission to define what advice is and how much the public is willing to pay for this advice.

While some may think that advice is invaluable and that it would be very hard to put a price on it, many clients within the industry do not feel the same way.

The survey shows that the prevalence of general pensioners receiving financial advice before retirement has dropped slightly from 60% in 2013 to 57.6% in 2014. On average, these pensioners received financial advice only 11 years before retirement. But this advice should be happening long before 11 years before retirement, is this common practice or is the survey making a generalisation? The proportion of general pensioners who did receive financial advice from their company’s HR office continues to rise.

Editor’s Thoughts:
Everyone deserves a comfortable retirement. This can only be achieved through the selection of the right retirement plan that is based on educated investment decisions. Is the survey a fair reflection of the state of the industry? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

Comment on this Post

Name*

Email Address*

Comment*

 

Submit Comment