Edition: Sept - Nov 2013
Expert Opinions

Uncertain and ill-informed

Study finds that pre-retirees have insufficient knowledge to navigate their imminent retirements.

South Africans close to retirement lack crucial knowledge to make sound decisions regarding their retirement savings, especially when it comes to annuity options, finds the recently-released Old Mutual Retirement Monitor. It disturbingly concludes that respondents in the pre-retirement group, aged 55 and older, have a particularly low level of understanding of their options.

Karabo Morule, General Manager of Member Solutions at Old Mutual Corporate, examines why pre-retirees are feeling less informed than younger members. She takes a closer look into this group’s thoughts and feelings about retirement.

Ignorance a major concern

Pre-retirees probably feel less secure about their retirements because, in approaching retirement age, they suddenly realise how little they know about their retirement fund. It’s a serious worry that about half the respondents said they do not know how much they have saved for retirement and do not even know anything about annuity options.

While approximately 46% of respondents in the pre-retiree group indicated that they do not know how much they have saved, just under 20% of respondents in this group have never heard of an annuity and 28% have heard only a little about them.

After the different annuities were explained, the pre-retirees were then asked about their preferred annuity structure. 49% said they would prefer an income on retirement that would keep up with inflation, even if that meant a lower monthly income. 29% would prefer to decide on a monthly income, even if it meant the money could run out if they lived a long time. The remaining 22% wanted a reasonable income on retirement, even if it might not keep up with inflation in the long term.

Their responses do not concur with what many people actually do. Because retirement savings are often inadequate in relation to their pre-retirement incomes, most people choose the annuity that provides the highest immediate income. They tend to prioritise maintaining their pre-retirement lifestyles over enabling their income to grow with inflation and lasting longer.

The reality is that this choice can mean that they run out of money quite quickly. Adequate retirement savings over a long period would allow members to ensure they make better choices at retirement.

Morule . . . much more support needed

Default annuity would be welcome

In spite of the apparent lack of knowledge about annuities, just under 80% of respondents indicated that they would feel positive about a default annuity. Only 5% would have no interest in a default option at all. The vast majority would find it useful, even if merely as a benchmark. This is encouraging for Old Mutual as it has advised trustees to provide an annuity default for fund members.

The data also revealed that only 43% of pensioners indicated that they received pre-retirement advice from their fund or employer.

Given the lack of knowledge of pre-retirees in terms of their options and financial positions in retirement, this 43% figure is a major concern. It’s clear that members need to be supported by both their fund and their employer when it comes to financial decisions on retirement.

The Old Mutual Retirement Monitor is an annual survey that tracks the attitudes to retirement of South Africans in full-time employment, including pre-retirees.

The full results of the survey are available online at www.oldmutual.co.za/retirementmonitor.