A beast government can’t control

The recent debacle into the new Social Grant payment system not only highlights a possible lack of good political decision making, but it also shows the importance of saving and building up a retirement income. The plight of the South African pensioner is well known. But can we sink below current levels?

Taking the low road

In a release to the media, Old Mutual reports that low rates of preservation of retirement savings will result in many South Africans not reaching their retirement goals.

This was the key finding of the 2017 Old Mutual Corporate Retirement Monitor, which reported a dramatic decrease in the number of employees planning to preserve their savings should they resign from their position.

The Monitor tracked trends in the attitudes of retirement fund members towards pre and post retirement over the span of seven years with the aim of understanding how they view retirement planning.

Matters of concern

Malusi Ndlovu, Head of Old Mutual Corporate Consultants, said in a statement to the media that  this dramatic decline in members’ intention to preserve is very concerning.

“Between 2012 and 2016, the number of working South Africans who are likely to cash-in their retirement savings, should they have the opportunity, has increased from 19% to 35%. Studies show that this is one of the most value-destroying behaviours when it comes to long term savings, as it reduces the impact of compound interest.”

This is not news to the industry. It is a perennial problem in South Africa and has become so pronounced that government is working on a strategy whereby it will force preservation upon the masses.

But we need to take a stop here and make sure that we are not cutting our noses to spite our faces. We need to ascertain how much of this is due to necessity and how much of it is not. Employment is a rare commodity with some people spending many months between jobs. In order to survive, some people are forced to access their retirement savings. If government forces preservation upon people there needs to be some flexibility in order to cater for this.

Nothing at all

Making the national outlook worse, Ndlovu added, is the fact that 30% of working South Africans have no formal retirement savings vehicles at all.

“This statistic jumps to 58% among people earning less than R5 000 per month. This group is the most vulnerable as they often do not have any discretionary savings either or own any property that they can sell to finance their post-retirement lifestyle. As long as this situation continues, a significant reliance on the state old age pensions will remain, and at only R1 600 per month the state pension cannot provide real security,” said Ndlovu.

Again, this is a tough situation, one where one cannot simply wave a magic wand and improve people’s salaries or their outlook on retirement.

However, something needs to be done to facilitate saving in this sector, no matter how challenging it may be.

The next challenge

Ndlovu went on to say that the increasingly high dependency ratios in families make the need for retirement savings even more urgent.

“About 23% of working South Africans are part of the sandwich generation that supports their children as well as their parents. What’s alarming is that this percentage increases to 25% for those aged 55 and older, including those earning as little as R5 000 per month.”

Coping mechanisms

While many South Africans admit to being worried about their financial situation, a large majority feel trapped. “As many as 73% of surveyed individuals believe that in today’s society, there is no alternative but to get into debt. This figure has been steadily increasing every year since 2010, when the figure stood at 60%.”

The percentage of non-fund members who expect to work after retirement has risen from 52% in 2012 to 58% in 2016, highlighting the benefit of being a member of a retirement fund and having structured retirement planning.

The issues discussed above are concerning. However, we are missing a bigger problem. The lack of national debates about this is shocking. If government wants to create an empowered population, one that does not depend on the state, we need to put aside competitiveness and as an industry work with each other to engage with government properly on this issue.

Editor’s Thoughts:
It is only through public and private partnerships that we can create a nation of savers. We must not become a nanny state because our current government simply can’t cope with that. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.