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A major positive point in the local economy

19 June 2017 Jonathan Faurie

A troubling development in South African politics, and society, is that certain factions are trying to split South Africa down racial lines, and are becoming very vocal about it.

One of the biggest concerns is the rhetoric that the capital in the country is being controlled by a very specific racial group.

However, have we stopped and scrutinised this? Economist Mike Schussler recently pointed out that if we did, this narrative would be dead in the water very quickly.

Watch the rhetoric

Speaking at a recent Financial Planning Institute of South Africa (FPI) Retirement Mini Convention, he said that the narrative of South African capital being controlled by a specific racial group, or solely benefiting that same group, is simply untrue.

“We have an asset in South Africa (pension fund savings) that we undervalue and underappreciate every day. We do not want to stand up and appreciate what it has done for the country,” said Schussler.

What exactly does he mean by this? Judging by the amount of South Africans that are unable to retire comfortably, one may very seriously question Schussler’s sentiment.

Schussler pointed to research done in 2009 where it was established that South Africa had just over 11 million investors in pension funds. At the time, this was just over 1.25% of the world total.

This has grown since then because of the rise of the emerging middle class who have more disposable income to put into savings. According to the Financial Services Board (FSB), there were about 16.5 million retirement savings vehicles in the country in 2015.

Who benefits?

There is no physical breakdown telling who owns these retirement savings vehicles, so it is hard to definitively say if one sector of the population is controlling the capital.

The retirement vehicles discussed above are private funds and do not include the sector of the population that benefits from the state retirement fund.

It comes down to what constitutes a family in the South African context. Schussler rightly pointed out that the dependency ratio in South Africa is high. “Because of this, we can assume that more than half of the South African population is benefitting from retirement savings in one way or another. That is 35 million members of the population,” said Schussler.

One would assume that because retirement savings is growing in South Africa (as pointed out by Schussler above) that most families would have at least one private retirement savings vehicle at their disposal and more than one family member benefiting from a state pension. While asset value per person is low, and the withdrawal rate from pension funds is high, there is at least some form of saving, meagre as it may be.

Changing colours

Addressing the aforementioned narrative directly, Schussler pointed out that current market trends show that Africans are the largest contributors to retirement savings vehicles in South Africa while the contributions of the white population is decreasing.

“In 1995 the contribution rate of South Africans contributing to retirement funds was 72% by the white population and 28% by the African population. Fast forward to 2015, we see the tables almost completely turned. In 2015, the same contribution rate was 29% by the white population and 71% by the African population,” said Schussler.

Strong performers

A strong theme during Schussler’s presentation was that South Africa should possibly depart from the racial narrative and focus on how the pension fund industry is benefitting the country as a whole.

“The growth of pension funds has added to the country’s gross domestic product in that the people who receive benefits can spend them in the economy. Companies and government have a vast resource to tap into,” said Schussler.

He added that pension fund assets are a major positive point in the local economy, which means that a downgrade will not be as difficult for South Africa to get out of as it would be for other countries. However, there are inherent risks in the market which are increasing and pressurising the pension fund resource. So while the downgrade may not hurt the country, it will hurt the public who are investing in these funds. 

Editor’s Thoughts:
While Schussler has a point, we must reiterate that contribution levels in South Africa are low; so even though there may be contributions going in, contributions aren't going to be of much good for a while. In addition, most people withdraw all of their money at retirement and spend it. Once again, this highlights the importance of advice and the fact that it is desperately needed in some sectors of South African society. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

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