The Retirement Reality Report 2021 (RRR21), the fourth annual report that interrogates the retirement savings crisis in South Africa, finds that a total of 71% of respondents in a national survey have no retirement savings plan, or just a vague idea of one.
The report is based on the results of the Brand Atlas survey, which tracks the lifestyles of the 15 million economically active South Africans in households earning more than R8,000 per month. The data are 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.
You can download the RRR21 here
Even among those respondents who said they had some sort of savings plan, 79% fear they won’t have enough to live on, or feel unsure, and just 7% feel confident of the increasingly old-fashioned idea of a comfortable retirement where one can maintain one’s lifestyle on savings accumulated during your working years.
National Treasury first proposed to reform South Africa’s retirement saving regulation 10 years ago. The need was self-evident: most people weren’t saving adequately and only half the country’s workers belonged to a retirement fund of any sort. Consequently, “only about 10 per cent of South Africans are able to maintain their pre-retirement level of consumption after they stop working”.
The reforms sought to address the root problem of inadequate lifetime saving and low preservation rates, but also to make households more resilient to income and expenditure shocks.
Despite these efforts, little has changed in the intervening years. That is the bottom line of the latest South African Retirement Reality Report, with even fewer people now anticipating a decent pension.
The RRR21 shows how the pandemic has exposed our society’s fault lines and magnified its vulnerabilities. It highlights the lack of a safety net for those around us who are just hanging by a thread.
According to the report: “Even before the pandemic turned our lives and economy upside down, many South Africans were in financial distress, symptomatic of the huge challenges facing our country. Millions are unemployed but even for many of those who are working, the money coming in does not cover their immediate needs, let alone their retirement funding requirements.”
The RRR21 confirms that economic hardship is real and widespread, with so many workers across all age groups, demographics and income groups saying they are barely making ends meet and cannot afford to save at all.
Our retirement saving crisis has been magnified dramatically by the global pandemic and containment measures. Financial hardship is no longer a risk most people fear experiencing in their old age but a clear and present danger that lies just one or two missed pay cheques away.
More financial education will help, but it won’t change the status quo for those people who are in such a financial crunch – with children to feed and rent to pay – that they will leave a job to get their hands on their retirement savings.
The report also found that having something that resembles a retirement savings plan often gives a false sense of security. How false becomes clear when looking at answers to such questions as: Are you on track? Will you have enough money to support yourself in retirement? How much are you paying in fees? Respondents admit to being largely in the dark about the answers to these key questions.
Use our retirement calculators to work out if you're on track
Nor will education necessarily address behavioural issues that result from denying there is a problem and refusing to engage with it. Many South Africans will continue to tap into their retirement savings when they leave a job because they can rather than because they need to.
National Treasury wanted to legislate against such “systematic irrationality”, but in the end chose “to nudge, rather than force” individuals to make decisions in their long-run interests.
It’s clear, though, that most South Africans won’t be nudged, they need a good shove. Better outcomes will have to be legislated, it seems.
Treasury’s recent proposal to let savers access a portion of their fund in times of financial distress provided they save the balance to retirement is not new. It was one of the five preservation options put forward in 2012.
In the end it went with another: to monitor the response to the new default preservation rule for three to five years, and to revisit the issue if there is no improvement. That’s where we are now.
The partial withdrawal option is the most pragmatic, as it merely accelerates access to the portion retirees can (and frequently do) take as a lump sum at retirement.
By preserving the rest, it guarantees some savings at retirement and is a win-win proposal that balances short and long-term needs. It also reduces the state’s burden at both points.
Other ideas, from levying an additional penalty tax on withdrawals to full preservation, will be difficult to push through politically.
Treasury’s reform proposals also envisaged a “fair and sustainable social security system” that would encompass compulsory retirement saving for all employees.
Such a step is necessary, but not in the form of a defined benefit scheme that usurps the current system, as put forward by the Department of Social Development. That won’t be fair or sustainable.
Nor can we afford to spend another 10 years in the design and consultation phase. We require an immediate and practical solution. The basis for this could be a pre-qualified shortlist of the simple, low-cost, defined contribution auto-enrolment schemes currently available.
Download the Retirement Reality Report here
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)
