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SA’s retirement-savings metrics moving in the wrong direction

SA’s retirement-savings metrics moving in the wrong direction

You can be certain that any sentence with the words “South Africans”, “retirement plan” and “recent survey” will tell you something you probably already know: few South Africans are saving enough. That pretty much sums up 10X Investment’s latest Retirement Reality Report, although there’s a sting in the tail: some of the already-bad metrics are moving in the wrong direction.

The report is based on the findings of the 2021 Brand Atlas Survey. Brand Atlas tracks and measures the lifestyles of 15 million economically active South Africans (those living in households with a monthly income of more than R8 000) through online completion surveys.

Here are some numbers:

  • The proportion of those surveyed who don’t have a retirement plan increased to 50% this year, from 49% last year and 46% in 2019. If one adds the 20% (2020: 20%; 2019: 21%) who said their retirement plan was “a bit vague”, it means 71% are not making provision for their retirement.
  • The percentage of people who said they have “a pretty good idea” of what they were doing also tracked in the wrong direction: 29% this year, compared with 30% in 2020 and 33% in 2019. The report commented: “Having a ‘pretty good idea’ suggests familiarity rather than insight and reflects the superficial understanding and relaxed approach many South Africans bring to their future financial affairs. The fact that people are moving out of this cohort and into the more polar realities of ‘I am preparing/I am not preparing’ may be a sign that people are now taking a harder look at their current position.”
  • On the upside, the proportion of those who said they have “a thought-through” retirement plan that they are executing increased to 8%, two percentage points higher than in 2020 and 2019.
  • However, as the graph below shows, an increasing proportion of people who have “some sort” of savings plan are worried they will not have enough on which to retire.

The report said the outlook has deteriorated for the most vulnerable groups: 84% (up from 76% last year) of those with a total monthly household income (HHI) of less than R20 000 said they felt concerned or were unsure about having enough money in retirement, as did 80% (76%) of those with a HHI between R20 000 and R50 000, and 70% (an improvement on 72% last year) of those whose HHI was above R50 000 a month.

Sadly, as expected, on almost all metrics, women are worse off than men.

Perception-reality disconnection

The report highlights “the perception-reality gap” even among those who are saving for retirement.

Of those who do have some sort of retirement plan, 48% think one can save for “a comfortable” retirement in less than 30 years – and 27% believe it can be achieved in less than 20 years. Only 30% of respondents said it required 40 or more years. South African savers’ understanding of the benefits of compound interest – and how to make it work for them – is clearly lacking.

Most respondents, 74% (2020: 77%) believe they will have to generate some income after they retire. Another 19% are not very sure, leaving only 7% who feel confident they are on course to be completely financially independent in retirement.

By income group, a mere 6% of those with a monthly HHI of R50 000 and above feel sure they will not have to keep earning after they retire. It was just 7% for both other income groups (less than R20 000; between R20 000 and R50 000).

As the report points out, the proportion of people who expect to keep earning in retirement is particularly worrying considering South Africa’s alarming unemployment figures.

But here’s the real disconnection from reality: although 79% of respondents worry about having enough to live on after they retire and 74% expect to need some additional income, 62% expect they will be able to maintain their pre-retirement standard of living. Only 10% were certain that their standard of living would decline in retirement.

The report observes:

  • Few people seem to appreciate how having too little money in retirement connects to the lifestyle they can afford one day.
  • Few appreciate that retirement is an inevitability, rather than a choice. Mandatory retirement ages, high unemployment levels, low economic growth, external shocks (think: Covid-19) and failing health undermine the assumption that one can carry on working until the day one dies.

In the dark about fees

To continue the theme of unreality, 15% of respondents think they are not paying any fees on their retirement annuities and 41% (an improvement from 48% last year) don’t know how much they are paying.

Only 6% said their fees were less than 1%, while 16% said the fees depended on performance.

The report said: “The fact that more than 1 in 5 people say they are paying above 2% p.a. (with 11% indicating they are paying in excess of 4%!) shows that many investors do not understand the crippling effect of compounding fees. Alternatively, they may not be aware that high-performing funds are available at very low cost.”

And those who aren’t saving at all

It’s not surprising that most people who are not saving for retirement say it is because they can’t afford to do so. Worryingly, this percentage has been steadily increasing, to 64%, from 56% last year and 55% in 2019. The most significant increase was in the 16-24 age group, where it jumped from 40% last year to 48%.

The number of people indicating that retirement saving was not a priority at this stage of their life declined to 22%, from 29% in 2020 and 36% in 2019.

There was a one-percentage point increase in the number of people who expected their family would take care of them (2%), or the government would look after them (2%), or their business would provide for them (4%).

There was a two-percentage point decrease, to 16%, in those who said they did not plan on retiring. However, among respondents aged 50-plus, more than a quarter (26%, up from 19% last year) now say they are not planning to retire, “another sign of the harsh reality check that has been imposed on so many”.

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