The RRR20 is being released on October 24, around a month later than originally planned, after the pandemic hit SA in the middle of data collection. Additional rounds of the survey were conducted so that the report could take account of some of the effects of the pandemic.
RRR20 is the third annual report from 10X, the first two having clearly laid out a worsening crisis of people not being able to support themselves in retirement, which was described as a ticking timebomb even before Covid-19.
A key issue that cropped up time and again in the data underlying the first two annual reports, RRR18 and RRR19, was that people felt they could not afford to save for retirement. Some of this is down to economic hardship. Even before Covid-19 things were bad. According to information released by StatsSA in April 2019, 49.2% of South Africa’s total adult population live below the upper-bound poverty line. This has been magnified this year, with more than half the survey respondents indicating severe financial stress.
But, importantly, data in this year’s report also shows that the problem is not just an income issue: people in the low, medium and high-income brackets report being equally worried about making ends meet in retirement. Rather, it is a savings problem that is rooted in the widespread lack of understanding about the necessity of retirement planning.
The vast majority of South Africans are not saving at all, and those who are remain largely disengaged from the process. They do not know how much they will need, nor are they interested in whether or not they are on track to preserve their lifestyle in retirement.
Given the immediacy of the threat from Covid, and the economic fall-out that accompanied the containment measures, it was natural that the issue of retirement preparedness was shifted even further down the list of priorities. And for many people, the economic crisis exacerbated the retirement crisis, particularly those people who lost their jobs and cashed out whatever little savings they did have.
Covid-19 really highlighted how little cash reserves/emergency funds people had. When their income was suddenly reduced or wiped out altogether during lockdown their pension savings was their only source of cash. The lack of understanding about the effects of taking this money out makes it seem an easy and obvious point of call.
When changing jobs, retirement savers have the option to preserve their savings, either within their current retirement fund or transferring tax-free to a new employer’s fund, or to a preservation fund or retirement annuity.
Cashing out savings when leaving a job is one of the most damaging retirement savings mistakes, with the consequences being so much more severe than one would imagine.
In addition to paying tax on the money that otherwise could have been ringfenced in another retirement savings product, the saver loses out on years of compounded growth. As the graphic above illustrates, growth builds on growth over time until there is a final steep escalation in value.
RRR20 will confirm the findings of the previous years’ reports: that treating retirement saving as discretionary spending, as the majority of South Africans do, is extremely problematic.
The pandemic has pushed many who were teetering on the brink of disaster over that edge. It has underlined how few people actually save for a rainy day, or have an emergency fund, never mind retirement savings.
It will have given many people a taste of what it is like to suddenly be forced into a steep lifestyle downgrade and to live with financial insecurity, a fate that awaits the majority of South Africans should we not tackle the retirement savings crisis that is plain to see for all those who look.
10X Investments’ Retirement Reality Report, which is being released to the public on October 24, is based on findings of the 2020 Brand Atlas Survey, which tracks and measures the lifestyles of the universe of 15.1 million economically active South Africans, currently those living in households with a monthly income of more than R8,000, through online completion surveys. The data is weighted to reflect the profile of this universe as defined by Unisa's Bureau of Marketing Research in their 2019 Household Income and Expenditure report.
The full report will be available for download here
