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New survey reveals South Africans lack awareness around retirement savings needs

28 June 2011 Old Mutual
Bongani Madikiza, Managing Director of Old Mutual Corporate

Bongani Madikiza, Managing Director of Old Mutual Corporate

Hugh Hacking, Umbrella Fund Manager at Old Mutual Corporate

Hugh Hacking, Umbrella Fund Manager at Old Mutual Corporate

The results of the 2011 Old Mutual Retirement Monitor released today in Johannesburg reveal that a lack of awareness around personal retirement savings and contributions to retirement schemes is one of the key reasons why the majority of working South Africans are not saving enough for retirement. Furthermore, the majority of South Africans anticipate having to work for financial survival after formal retirement.

The survey comprised 1005 hour-long face-to-face interviews and examines pre-retirement perceptions among working South Africans, in particular their confidence regarding the financial provision they have made for their retirement.

Bongani Madikiza, Managing Director of Old Mutual Corporate, says the survey results reveal that because many South Africans are struggling financially they end up prioritising their income towards other needs, rather than long term savings such as retirement savings.

According to the survey, respondents’ primary savings motivation was the need to save for their children’s education. Madikiza explains that this pressure on middle-aged people (35-49 years) to focus on saving for their children’s education means that their retirement preparation is likely to fall short.

“The possibility exists that some respondents regard their children as a form of substitute retirement policy. However, irrespective of respondents’ views on the role of their children in their retirement, it remains very concerning that only 54% of respondents who are currently 10 years or less away from retirement are actually saving for that retirement,” he says.

“By their own admission, most individuals are not meeting their retirement goals. While short-term solutions may be possible for those who already find themselves in this situation, it is clear that long term, mindset-changing interventions are needed in order to educate people regarding disciplined retirement savings from an earlier age. As a society we also need to investigate mechanisms that help make this affordable for the majority of South Africans,” says Madikiza.

 

Furthermore, among respondents from lower income brackets, the importance of providing for death or funeral expenses competes directly with saving for retirement. Madikiza says many respondents are doubtful that they will in fact reach retirement age at all. For this reason 58% of respondents earning less than R3000 feel that death, funeral and disability cover is more important than retirement savings. “This mindset is concerning as it does not take inter-generational savings into account and contributes to the cycle of poverty,” he says.

The data also revealed a significant lack of awareness among respondents regarding the size and adequacy of their contributions towards their retirement. “Only 23% of respondents knew the approximate value of their retirement savings. In addition the respondents reported contributing on average only 8% of their salary, while it is generally accepted that on average people should contribute around 15% of salary,” says Hugh Hacking, Umbrella Fund Manager at Old Mutual Corporate.

What makes this finding especially interesting, according to Hacking, is that although 70% of respondents believe that their contributions towards retirement are ‘about right’ and only 15% of respondents felt that they were contributing too little towards retirement; approximately 58% said they expect to need to work after retirement, primarily for financial reasons.

“Unfortunately this again points to the fact that individuals are not able to accurately assess their post-retirement needs and carefully calculate their pre-retirement funding requirements to meet those needs,” says Hacking.

A number of differences in responses between fund members and non-fund members also emerged. Fund members as a group tend to be more satisfied with the provisions they have in place for retirement, more confident in formal retirement products and less fearful about retirement.

Hacking partly attributes the low levels of awareness among fund members to dissatisfaction among members regarding the form, content and frequency of communication issued by the retirement funds. Funds still favour printed communication. However, members indicate a clear desire for email, telephonic, cell phone and face-to-face communication.

 

Furthermore, while respondents indicated that they have been kept aware of fund basics and fund rules, few indicate that they have received communication around the value of their savings, administration and management costs, adequacy of provisions and education on how to improve their retirement provision.

“Results also revealed that the lack of communication around preservation of retirement funds at the time of leaving a fund is actually having the effect of discouraging preservation.

“Only 24% of respondents who had left employment in the last 15 years say that they were given any advice by their fund or employer as to what to do with their retirement funds on leaving,” says Hacking.

When asked what they would do with their retirement savings should they resign, change jobs or be retrenched, 18% of respondents indicated that they would take 100% in cash on resignation, compared to 33% who said they would do so on retrenchment. However, when asked if they would take at least some part of their retirement savings in cash, 64% of those resigning and moving to another job said they would, while 75% said they would were they to be retrenched.

“Preservation is an area of retirement funding that requires urgent attention and focus. It needs to be made easier and more compelling for fund members to preserve their benefits,” says Hacking.

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