This is just one finding of 10X Investments’ latest Retirement Reality Report, which was released on September 30.
RRR22, 10X’s fifth annual report, is based on the Brand Atlas survey, which tracks the lifestyles of 15,4 million economically active South Africans (16 years or older, living in households with a monthly income of more than R6,000 pm, and with access to the internet).
RRR22’s key findings include that a shocking 68% of people surveyed have no retirement savings plan at all, or just a vague idea of one.
RRR22, however, also outlines how small changes would make a big positive difference. One of the common misconceptions is that you need to have copious amounts of money in order to make any impact on your savings.
If retirement savers were to apply the small adjustments that the report recommends, the expected outcome would be that South Africa’s poor retirement readiness statistics, including that only 8% of people surveyed for this report are confident that they are executing a properly thought-through retirement savings plan, would be materially improved.
It seems more important than ever before that those people who are saving must maximise on their investments.
As the report shows, an increasing number of South Africans just cannot afford to save for retirement: 70% of people surveyed this year (up from 64% last year, and 56% the year before) said they simply cannot afford to save because there is nothing left at the end of the month.
It is clear from RRR22 that employers could be playing a big role here.
RRR22 finds that more than half of those who say they do have a plan (53%) belong to a corporate fund or belonged to one in the past, suggesting this is an introduction to retirement saving for many.
Being part of the formal retirement saving system should mean being exposed to some structured information and training about the fund, retirement saving in general, and options when leaving that job.
Still, 60% of those people who left a corporate scheme cashed out their savings.
Cashing in savings – effectively resetting the process to zero and losing out on all future growth of those savings – is a common and often devastating error made by retirement savers.
When changing jobs, retirement savers have the option to preserve their savings, either with their current retirement fund or to transfer tax-free to a new employer’s fund, or to a preservation fund or retirement annuity fund.
Yet many members cash out their full benefit, unaware that there is the option to take a portion as cash and preserve the remainder, with the opportunity of one more – full or partial – withdrawal before retirement age.
Many people who intend to use only a small amount of their savings, and who are unaware of these options, take the whole amount, which leads them back to starting all over again with their retirement savings.
Just over a third (36%) of current or former corporate members believed they have a good understanding of their fund, a quarter admit they have no idea at all or aren’t really interested, but the remaining 39% say they know little but wish they knew more.
It seems that employee benefits teams at corporate funds and HR departments are missing a trick by not educating members to maximise on the benefits offered by fund membership.
There is no doubt that in today’s economic climate many of those who cash out their savings, especially those who have lost their job, have no other realistic choice.
Even if they are aware of how much they will lose over the longer term, immediate, pressing concerns, such as hungry children or being handed over to debt collectors, will override worries about long-term financial well-being.
Still, education to help savers make the best possible choices wherever possible seems like a no-brainer in these tough times.
Relying on their employer to do due diligence for them, some question why they should bother to learn about their fund, as shown by the 12% who said they were not really interested because they trusted their employers and/or fund managers to make the best choices.
That is up from 7% last year. Although the proportion of people with “no idea” decreased from 18% last year to 13%, combined, a consistent quarter of fund members don’t monitor the management or performance of their retirement savings fund.
There is less individual choice for members of a corporate fund than in a retirement annuity as the employer makes some of the big decisions in the interests of all members.
It is, however, important for members to make the most of the choices and opportunities they are given, which should ideally allow them to align their investment strategy with their savings goal based on their retirement plan.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250).
