Employers can do more than offer retirement benefits – they can encourage employees to track their progress, understand their net replacement ratio (NRR), and make informed decisions to ensure they are ready for retirement.
Allan Gray’s research indicates that engagement among members nearing retirement remains low. According to Everjoy Gumbo, specialist in group savings and investments at Allan Gray, only 22% of Allan Gray Umbrella Retirement Fund members who were set to retire within six months over the course of 2024 actively engaged with retirement tools provided by Allan Gray, while only 65% of members who were two years away from retirement accessed their online accounts.
“While many members likely know how much they are contributing monthly towards their retirement investment, they are in the dark about the rest of the detail – and are therefore not able to assess whether or not they have accumulated adequate funds to provide them with a retirement income that can sustain their lifestyle.”
Gumbo advises employers to encourage employees to check their retirement investments at least annually.
“A simple way for employees to check their progress is to take stock of their current savings, think about the lifestyle they want in retirement, and then compare it with what their current contributions are likely to deliver,” she says. “This helps employees to understand – at the very least – whether they are on track for a comfortable, sustainable retirement, as well as make informed decisions about when to retire.”
Tracking retirement investments with the NRR
One of the ways employees can monitor their progress is by reviewing their NRR, which projects the portion of pre-retirement earnings that will be replaced by post-retirement income.
“The retirement industry consensus view is that an NRR of 75% is ideal to sustain a comfortable retirement, but, of course, this is an average, and the true amount will differ between individuals,” says Gumbo.
For example, if someone earns R10 000 a month just before retirement, a post-retirement income of R6 000 a month equates to a replacement ratio of 60%.
Gumbo explains that the NRR provides employees with a clear view of whether their retirement savings are on track. “It shows how much they are likely to have saved by retirement if they keep contributing at current levels, compared to what they would need to maintain their desired lifestyle, come retirement.
“Since the NRR is influenced by factors like age, savings, contributions, investment growth, lifestyle, and income streams, reviewing it regularly at different life-stages helps employees plan and make adjustments to secure a sustainable retirement.”
She adds that some providers have developed NRR tools for employers to review the overall NRR of their employees, helping to identify who may need intervention.
Gumbo recommends that members track their NRR at least annually, particularly when their circumstances change, to ensure they remain on track to meet retirement savings goals.
Improving retirement outcomes
Employees can improve outcomes in several ways, says Gumbo.
“By increasing contributions – whether through salary-linked deductions, regular check-ins, or ad hoc top-ups from bonuses – members can steadily boost their retirement savings. Just as important is resisting the urge to withdraw early under the two-pot system. While a portion of savings may be accessed annually, doing so can reduce long-term growth and carry tax implications.”
She adds that members may need to adjust their lifestyle expectations or consider delaying retirement to allow more time to save and reduce the number of years their savings must support them.
“Seeking advice from an independent financial adviser can also provide valuable guidance,” Gumbo says.
