The annual 10X Retirement Reality Report indicates that saving for retirement is effectively insurance against outliving working life. Although this is a valid argument, why does such a high percentage of respondents not have a plan?
Here are some of the reasons emanating from the survey:
|●||I cannot afford to save; I have nothing left over at the end of the month – 56%|
|●||It is not a priority for me at this stage of my life – 29%|
|●||My spouse and/or wider family will take care of me -1%|
|●||The government will look after me – 1%|
|●||I have valuable assets that I can sell whenever I need – 1%|
|●||I have a business that will take care of me – 3%|
|●||I am not planning on retiring – 18%|
“A reduction in the number of people saying retirement saving was just “not a priority” at this stage of their life – down from 36% in 2019 to 29% this year – is hopefully a sign that there has been a positive shift in attitudes towards retirement saving,” the research derived.
Another contributing factor in South Africa’s retirement crisis is high fees.
According to the report, the number of people who do not know how much they are paying remains more or less the same at 49% (2019: 50%), whilst the number of respondents who believe they are paying no fees whatsoever has decreased, from 16% in 2019 to 11% in 2020.
More respondents than before say they are paying upwards of 2% in fees (24% of people, up from 21% last year). “This a sign that investors still have some way to go in understanding the detrimental effect of compounding fees,” is reported.
“The average policy-based RAs sold by the large insurance companies in South Africa cost close to 3% pa, made up of around 0.75% for advice, 0.25% for administration, 1.5% for investment management and 0.4% for Vat. Even though there are low-cost alternatives on the market, charging less than 1% pa and delivering similar or even superior performance, it is a bit of a shock that the industry continues to sell the more expensive versions … and get away with it.”
(Figures from the RRR20)
It is a well-known fact that high costs, including commission based on the term of the contracts, were a major driver for increased regulation. In the case of retirement annuities, specifically, the legal prescript that it could only mature after age 55, made it a lucrative commission spinner. This was also the main reason why so many of the older generation RAs had a maturity age of 69, which was until recently the compulsory retirement age. While most advisers have opted for the new-generation, low-fee options, there were still those who were incentivised by product providers to market the higher fee products which muddied the water for the rest of us.