Issue: September-November 2011
Editorials

SAVINGS MONITOR

Facts and figures

Add a dollop of fear. The sense of unreality about retirement provision goes on and on. Improved longevity is a mixed blessing.

Year in and year out, the message is basically the same. It's that South Africans aren't saving sufficiently for their retirement. For a crisis (the word not being used lightly) of old-age funding to be averted, what's to be done?

Were it only that simple solutions offered themselves. But there aren't. Beyond making savings and preservation mandatory – which in any event could only apply to wage and salary earners in regular employment – OMIGSA chief economist Rian le Roux reckons that people save when they are able and willing to do so.

Perhaps there's also a third reason: fear of not doing so. Put starkly, it's to avoid old-age penury.

Clearly, to judge from the latest annual Old Mutual retirement savings monitor, none of these three factors apply with the gravitas that they should. Key findings are:

  • Many South Africans are struggling financially. They're prioritising other obligations, such as children's education, ahead of retirement;
  • Many don't see themselves living long into retirement. Thus they don't identify with the need to save for retirement;
  • Individuals' general satisfaction levels with their current state of retirement provision remains low;
  • Contribution levels remain too low to create sufficient retirement funding;
  • People are unlikely to preserve their retirement savings unless there is some form of compulsion;
  • People remain uninformed and uneducated about their retirement funds, due at least partly to poor communication by funds to members.

The survey comprised 1 005 hour-long faceto- face interviews. "The possibility exists that some respondents regard their children as a form of substitute retirement policy," says Old Mutual Corporate managing director Bongani Madikiza. "However, irrespective of respondents' views on the role of their children in their retirement, it remains most disconcerting that only 54% of respondents who are currently 10 years or less away from retirement are actually saving for that retirement."

By their own admission, he notes, most individuals are not meeting their retirement goals. He believes that "mindset-changing interventions" are needed to educate people into disciplined retirement savings from an earlier age.

Indeed they are. But calling for interventions and getting them to happen is, from years of trying, akin to pushing water uphill. It runs up against the mindset of deeply-ingrained consumerism, not only in SA but throughout the western world where the effects of exorbitant debt are horribly apparent.

There's a paucity of both ability and willingness to save. To 45% of the monitor's sample – representing working households in metropolitan areas -- death, funeral and disability cover are more important than retirement savings. These were mostly people in lower-income brackets who doubted that they'd reach retirement age at all.

There's a paucity of both ability and willingness to save. To 45% of the monitor's sample – representing working households in metropolitan areas -- death, funeral and disability cover are more important than retirement savings. These were mostly people in lower-income brackets who doubted that they'd reach retirement age at all.

Madikiza

Madikiza . . . mindset change needed

Amongst the more affluent, the pattern is hardly less disturbing. On average, males are expected to live until age 80 and females until age 88. Thus, assuming the male to be the sole breadwinner and to retire at age 65, his retirement savings must serve him and his spouse for 15 years.

Fat chance if he's contributing only 8% of his annual salary to a retirement fund; worse if he cashes in whenever he changes jobs. A rule-of-thumb is to save at least 15% a year from age 25, presuming that he's never out of a job and that his definedcontribution fund consistently provides inflationbeating returns.

Not surprising, then, most respondents who were saving expected that for financial reasons they'd need to work after retirement age. And this was although they felt that their contributions to retirement funds were "about right". The contradiction amply illustrates that they have little clue of how much they should be putting away. Clearly, they're getting the wrong advice or no advice at all – whichever is worse – on their pre-retirement funding requirements.

There's a toxic mix of retirement assumptions, like children being prepared to support aged parents (some don't, it's believed) and being able to find work after retirement (what with the thousands of technically qualified and unqualified youngsters annually entering the jobs market). Or the quaint belief that ultimately the state will provide (okay, so try living on R1 140 per month).

Oh yes, and for those thinking that they have saved sufficiently for their retirement, they'd better get around to thinking about inflation too. The mindset-changing interventions, for which Madikiza calls, should be injected with a heavy dose of fear. Nothing else seems to work.