Issue: Mar/May 2011


Savings stalemate

Talk, talk, talk. It's as though it were an end in itself, but it's going nowhere. Less democracy and more compulsion would help. So too would a government that leads by example.

It's all been heard before, again and again, with monotonous regularity: SA's rate of household savings is dismal; provision for retirement is dire; a funding calamity awaits, at the individual level because the number of people who face old-age penury is overwhelming and at the national level because reliance on easy-come-easy-go foreign capital flows to finance local investment is riddled with risk.

For all the talk, ad nauseum into the night, resolution is brought no closer. Rather, it illustrates Einstein's observation that insanity is repeatedly doing the same thing and expecting different results. The abundance of warning of whining, of research surveys and product offerings, appear to have zilch effect on deeply-ingrained behavioural patterns.

That something is seriously amiss has been acknowledged often enough. The causes are obfuscated. It appears that government and savings institutions prefer contentment in comfort zones, the one reluctant to point fingers at the other, government not wanting to alienate voters and savings institutions not wanting to alienate government. Blatantly, their softly-softly reciprocity is catching few monkeys.

For example, the hoariest of palliatives is consumer education. It's soothing to agree that this is a "good thing". It's nice to show that programmes are in place, and it earns plaudits. But, after all the years and all the programmes, look to the pudding for proof of their success. It isn't there. For as long as greybeards can recall, the time-worn statistic is that fewer than 6% of the population will retire with relative financial independence.

How difficult can it be, for goodness' sake, to explain the wonder of compound interest? Or to show that the key to wealth accumulation is saving early, often and regularly? Those are the basics, surely capable of comprehension within an hour by the twitter generation and its elders. The rest is embroidery.

Despite the message being driven and hammered, it obviously doesn't hit home. The ratio of household debt to disposable income remains around 80%. The household savings rate, whether as a proportion of gross domestic product or disposable income, teeters on zero. Conventional wisdom, and painful reality, is that South Africans lack a savings "culture". The question is why.

One answer must be in the abundance of voluntariness. It's too easy to make withdrawals from funds, too tempting to avoid preservation. There's wide-ranging individual member choice on investment portfolios, to the point of heightened confusion and increased costs defying the sweetest of democratic assumptions that ordinary people are capable of rationally deciding, in their own best interest, the best choices for their own money

It doesn't necessarily follow that financial advisors are better at making choices for them. It does follow that choices should become more limited, withdrawals more restrictive and that fund members' inertia be used to advantage. This can't be terribly difficult, as most members select default options anyway.

Then ensure that authenticated documentation is produced before the fund's administrator, not merely its trustees, allow a heavily capped proportion of a member's savings to be withdrawn for such specific needs as housing and health, not for deflection into shopping jaunts.

Further, long proposed but still up in the air, members should not be permitted to cash in their pensions on switching jobs. And so on. Such obvious protections – to prevent the abuse of retirement funds' whole purpose and plug the leakage of capital stock -- deal only with those sufficiently fortunate to be in formal employment where membership of an occupational fund is mandatory.

These are matters talked about, and talked about, in debates on reform of the social security and retirement systems that have been ongoing ever since the report of the Taylor committee almost a decade ago. The talk continues. It evades, as a central theme, the inculcation of a national savings "culture"

Who's to walk the talk? Primarily, it must be government because it sets the tone and it creates the lead. What talk does it walk?

To promote expectations of free services on which it cannot possibly deliver. To foster a nanny-state dependence ethos that it will provide, when it cannot. To spend and spend, selectively and wastefully, on elitist luxuries and fanciful projects too numerous to mention; from the opulent game-resort venue for a lekgotla to an anti-imperialism youth festival for fans of Julius Malema.

Austerity is not a word that features prominently in government's vocabulary. Aside from headline-grabbing expenditures that might subjectively be considered wasteful, through inclinations for extravagance, there are those objectively found to be wasted through incompetence or worse. In his report for last year, the Auditor General identified R8,7bn in national departments' wasted expenditure; petty cash against, say, the arms deal.

It comes at a cost. As Finance Minister Pravin Gordhan politely put it in his 2010 Budget speech: "If we are to make rapid progress in transformation programmes, it is imperative that equally rapid progress is made in reducing wastage and inefficiency elsewhere." Dream on, so long as cadre deployment precedes public-sector competence and populism undermines political will

Neither is there anything to resemble a savings vision. Google the speeches of President Jacob Zuma to search, in vain, for its articulation. Ditto the quiet pleas of Gordhan and the vague references in the New Growth Path of Economic Development Minister Ebrahim Patel to the promotion of a national consensus.

One could go on. One could look at the tax incentives, or inadequacy of them, to encourage saving. One might be sensitive to the fickleness of markets and currencies, to which SA is not impervious. One could dwell in the fantasy world where somebody else will care for those who don't, or can't, take responsibility for themselves

Or one could wait for government, by leadership and example, to trigger the change in culture. That, however, is likely to be a long wait. Little has been taken to heart in SA, spared the worst consequences of the financial meltdown that western countries' high consumer indebtedness and low personal savings had sparked. The markets have rebounded, so why worry?

Allan Greenblo,
Editorial Director