South African savers seem resistant to change
The more things change, the more they stay the same! Most of you will have heard this phrase at one time or another. I’m not 100% sure who coined the expression, though a basic Internet search suggests it stems from a French-language proverb which translates loosely as “nothing changes too much.” The phrase was top of mind as I sat through a media presentation on the findings of the Old Mutual Retirement Monitor 2011. It feels as if our attitude to saving for retirement resists every industry attempt at reform!
The objective of the Old Mutual Retirement Monitor is to understand the attitudes and perceptions of ordinary South Africans, whether retirement fund members or not, on all issues relating to retirement. To this end the group commissioned a third party to conduct 1,005 face-to-face interviews of full-time metropolitan dwellers between the ages of 18 and 64. The sample was chosen to reflect the country’s demographics, with approximately half of respondents members of retirement funds and half not. “South Africans understand the role education plays in breaking the cycle of poverty but haven’t yet cottoned on to the importance of savings in achieving this goal,” said Bongani Madikiza, Managing Director of Old Mutual Corporate, introducing the findings.
The benefits of belonging
Madikiza observed that many South Africans had to defer long-term retirement savings due to financial hardship. And the survey found that many respondents viewed saving for their children’s education as a priority. The 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 said.
The survey found that retirement fund members were better informed and more empowered than their non-member peers when it came to saving for retirement. This development can probably be attributed to the member education offered by various employer-sponsored funds. It emerged that members held significantly broader baskets of savings and investment policies, for example. Of the survey respondents who were members of employer-sponsored pension or provident funds (51%) an impressive 30% had additional non-employer retirement annuities.
In stark contrast the 49% of respondents who were not members of retirement funds had made little progress along their respective savings paths. Of the non-members, 16% worked for employers who offered retirement funds and chose not to sign on, while 58% indicated they would definitely participate if such an option were offered. Only 17% of this group ‘owned’ retirement annuities.
Making adequate provision for retirement
Fund members were, not surprisingly, more satisfied than non-members with the state of their retirement provisioning – on a scale of one (hopelessly dissatisfied) to 10 (extremely satisfied) non-members registered 4.9 versus 6.6 for fund members. The survey determined that members were less fearful and more likely to look forward to their retirement, more confident in formal retirement products, marginally better planners and more likely to feel financially empowered.
Questions around retirement age revealed a sensible mix of optimism and realism. Most respondents desired to retire between the ages of 50 and 65 years, though they realised they were more likely to be able to afford to retire in the 60 to 65 year age group (45%) or later (23%). They say nothing is certain but death and taxes… But uncertainty creeps in when we try to answer when (for death) and how much (for taxes). Old Mutual’s survey showed up a frightening disconnect between how long respondents expect to live post-retirement and how long they are likely to live. A massive 43% of respondents felt they would live for no more than 10-years in retirement. But statistics suggest the average retiree lives 14.2 years, the period your retirement provisioning needs to cover.
Sources of retirement funding...
It was also interesting to compare expectations on sources of retirement funding. The bulk of fund members (64%) said they would rely on payments from their pension or provident fund. But the bulk of non-members (32%) believed they could rely on cash savings to get by. 21% of non-members and 2% of members believed the state would meet their retirement funding needs. This reliance on the state is of particular concern due to the means testing currently applied. Only a fraction of survey respondents would quality for the State Old Age Pension given their current mix of earnings / savings.
Editor’s thoughts: Old Mutual says their Retirement Monitor 2011 survey closely mirrors results from 2010. The conclusion we draw is that South African savers haven’t wised up over the past 12 months... Do you think we can improve the retirement savings outlook without compelling the employed to save? Please add your comment below, or send it to [email protected]
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