Edition: Mar - May 2014
EXPERT OPINION

ATTITUDES TO RETIREMENT SAVINGS SHOW CLEAR NEED FOR INDUSTRY REFORMS

Far too many South Africans still have no savings for retirement. Craig Aitchison, general manager of customer solutions at Old Mutual Corporate, discusses the hard realities that emerge from survey findings.


Aitchison . . . causes for concern

South Africans may be increasingly aware of the dire state of their retirement savings. Clearly, the low savings rate needs to be addressed through legislative support for compulsory savings and increased education around members’ options at retirement.

This is apparent from results of the 2013 Old Mutual Retirement Monitor. The annual survey, which measures pre-retirement perceptions among working South Africans, is the fourth annual survey conducted by Old Mutual. It is based on 1180 face-to-face interviews.

A critical finding is that a large proportion of the population still has no form of retirement savings in place.

Reform needed to strengthen savings culture

Only 50% of all respondents listed retirement as a specific savings objective. Strengthening the savings culture among South Africans has been identified by National Treasury as the primary driver of the current retirement-reform proposals.

It also emerged from the results that, amongst respondents, saving for education remains a high priority. Funeral policies continue to enjoy steady support. On the other hand, the incidence of formal retirement products has declined steadily over the past four measures; at 58% of respondents, this is its lowest level to date.

For the first time, the 2013 Retirement Monitor also assessed the overall savings habits of respondents.

Interestingly, total monthly savings differ significantly between members of retirement funds and non-members, with non-members typically saving almost R1 000 less than members. This provides strong evidence for the benefits of a compulsory savings vehicle. It’s a key reason that we applaud this particular proposal by government.

Rise in retirement dependency

While respondents seem less negative about their financial security in retirement than in 2012, the results show a concerning rise in their retirement dependency.

As the pressure of rising costs weighs on South African households, respondents are increasingly looking to external sources such as government and their children to support them after retirement. It’s a trend we also saw in the previous year. The concern is that this reliance on future generations only entrenches the cycle of poverty.

But it’s encouraging to note a continuing trend of respondents being increasingly better informed and realistic about how long their retirement savings will need to last. On average, respondents said their retirement savings will have to last them 17,1 years.

These figures are improving. However, they remain relatively unrealistic.

Low levels of engagement and knowledge

As in all previous Retirement Monitors, members’ levels of engagement with – and knowledge of – their retirement funds remain disturbingly low.

Just under 60% of respondents indicated that they did not know who their funds’ trustees are. It’s an increase from 42% of respondents in the previous year’s survey.

In spite of this, members continue to demonstrate high levels of confidence in the trustees of their funds. On average, members rated the level of trust that their trustees would make the right decision on their behalf at 7,6 out of 10.

The survey also revealed some interesting insights into the preservation behaviour of respondents. Of those who took cash on leaving a fund in the past 15 years, 61% accessed their entire entitlement in cash.

The damaging effect that this can have on retirement savings has become a major concern for Treasury. Necessarily, it has proposed some kind of compulsory preservation vehicle for South Africans.

Another concerning revelation is the lack of awareness and education about retirement annuities. This is apparent across all income, age and fund membership levels. Just 33% of respondents had only heard about annuities previously, while 29% had never heard the word “annuity’” used in the context of their retirement planning.

Our research has shown that fund members often make uninformed decisions upon retirement. This raises the important question of how trustees and other stakeholders can better assist members on their approaching retirements, especially when it comes to the role of annuities.

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

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