Yet more retirement funding blues
It seems the more a message is repeated, the easier it is to ignore. Since we’ve been covering topics in the investment and savings industry the warning that’s most often repeated goes to the inadequacy of retirement provisions. Each successive survey or study in the area of personal financial planning comes to a similar gloomy conclusion. South Africans aren’t saving enough for their retirement. Are we not getting the message – or are we simply unable to modify our savings habits to secure a better outcome?
During October and November 2008 the Association for Savings and Investment SA (ASISA) polled a number of financial advisers (active in the areas of personal financial planning, investment and long-term insurance cover) to learn more about the savings habits of their clients. “ASISA received 393 qualifying responses from independent financial advisers, tied agents, bank brokers and corporate brokers.” As explained in the opening paragraph the conclusion was quite expected: “South Africans are financially ill-prepared for retirement!” What makes the result interesting is that ASISA tackles the retirement funding dilemma from a slightly different angle. Instead of polling future retirees (savers) it focuses on the people who are hard at work tailoring savers’ financial plans.
The percentage game
According to Peter Dempsey, deputy chief executive of ASISA, 72% of the survey respondents were independent financial advisers – with almost two thirds of them boasting more than 15 years experience in the industry. Their responses provide insight into how South Africans save for retirement. Retirement annuities remain the most ‘sold’ retirement savings vehicles, followed by living annuities and preservation funds. It’s clear from this information that the tax concession tied to retirement annuities is a major incentive for retirement saving! The survey also found that two in five financial advisers channel more than half of their client’s discretionary funds into unit trust products. But that’s where the ‘good’ news ends.
Dempsey notes that only 13% of respondents were bold enough to predict that more than half of their clients were well-prepared for retirement. It’s a bit of a mouthful; but whichever way we stack these numbers we conclude the vast majority of clients are committing inadequate funds to meet the most basic of retirement needs. The financial services industry should be even more perturbed that this block of retirement savers represents the segment of the population benefiting from financial advice. What about those without access to professional financial planners?
Why are South African savers still missing the target by so much? Dempsey says the main reasons for the situation include a poor savings culture, failure to preserve retirement benefits when switching employers and relying only on employers’ retirement funds for retirement benefits. But there’s something else amiss. We expect these concerns are communicated by financial advisers to their clients on a regular basis – which leads to a rather unpleasant conclusion: that client’s aren’t able to commit enough funding to their retirement chests!
An ageing intermediary force
The global financial turmoil is also impacting on local savers. Dempsey says “feedback received from financial advisers indicates that more clients are requesting switches to money market funds, querying performance more often and expressing concerns about reduced returns.” This is an inevitable consequence of sharp falls in equity values in markets across the world. Increased volatility also means that advisers “are spending more time reassuring and educating clients than in the past.”
Results from ASISA’s survey also confirm suspicions of an ageing financial intermediary workforce. Dempsey revealed that while the vast majority of respondents were in the 35 to 65 category – 43% of this group was between 50 and 64! It’s these ageing professionals who will have to lean on their clients in an attempt to change their savings habits. The only other way to improve the domestic landscape will be to lower retirement expectations across the board… And that’s the most likely outcome if the national social security system is implemented.
Editor’s thoughts: There are numerous demands on today’s financial intermediary – including the ‘fit and proper’ advice requirements legislated by the FAIS Act. What happens if one of your clients retires with inadequate retirement funding after you’ve advised him for five, 10 or even 15 years? Is it possible the financial adviser can be held responsible for inadequate retirement provisioning? Add your comments below, or send them to [email protected]
Comments