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SA retirement crisis – Are employers playing their required role?

The 10X Investments’ Retirement Reality Report (RRR20) discussed last week, confirmed SA’s looming retirement crisis and delved deeper into factors affecting people’s retirement planning in South Africa. Looking at the role of employers in South Africa’s retirement crisis, RRR19 shone a light on the missed opportunity of actively engaging employees in the savings process to achieve better outcomes.

Financial inclusion is also a major focus area of National Treasury, as evidenced by the release of a discussion document last week.

“The upshot is that many South Africans pay little attention to their life’s biggest investment. More than 60% of those who had been (or still were) members of an employer’s retirement fund said they knew little or nothing about the fund, or were not interested,” according to the Report. It further confirmed that the findings of the previous years’ reports: that treating retirement saving as discretionary spending, as the majority of South Africans do, is extremely problematic.

Here are some of the insights of the report:

62% of respondents who indicated that they have left their employer’s corporate scheme (16% of all respondents), cashed out their savings – a one percent increase from last year’s report.
Many are also unaware that there is the option to take a portion in cash and preserve the remainder – something the Minister of Finance also addressed in his speech last week.

This data therefore confirms that most members of retirement funds are poorly informed and/or ill-equipped to understand their retirement funds.

Regulations that came into effect in March 2019 made it compulsory to provide counselling to members who are leaving a fund, in terms of the choices, and the effect of these choices available to them (preserve with the existing employer, transfer to the new employer’s fund, preserve savings in a preservation or RA fund, or cash out, in whole or in part).

Click here to read more about the Retirement fund default regulations.

Finance minister Tito Mboweni also made several announcements in his Medium-term Budget Policy Statement (MTBPS) last week which will have an impact on the retirement and pension plans of some South Africans. One of these is that workers will be compelled to buy an annuity with two thirds of their provident funds when they retire, effective March 2021. Workers will be allowed to withdraw one third of their provident fund savings as cash. The new measure will not apply to those over 55 as at 1 March 2021 and will not be retroactive.

Whether this will be implemented or not will be indicative of the government’s success in winning cooperation from the unions. When this was first mooted several years ago, it was harshly criticised, and left on the backburner until now.

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