Most South Africans are nowhere near ready for retirement; South Africans among the world’s worst savers; Denial and retirement savings insanity; Why only 6% of South Africans can retire comfortably.

Headlines we constantly see in the media…

Are South Africans taking this seriously or are they treating it like most of the other “talk” in the media and choosing to ignore it? Our feeling is that the latter is the reality for most South Africans.

We believe there are a number of reasons why South Africans are faced with this retirement crisis, all of which require equal consideration. Firstly, a high percentage of South Africans are struggling financially and can hardly make ends meet every month. For some, saving more for retirement is just not possible. Others feel it’s too late to do anything and most of the younger generation believe they have plenty of time to save and put it off until they finally (and very quickly) find themselves as part of the group saying “it’s too late to do anything”. The primary reason for these “social ills” is people not managing their finances correctly combined with a lack of financial literacy.

Another problem we pick up when engaging with members concerning their retirement, is that most of them are not properly educated regarding retirement planning. Financial literacy and education are in themselves becoming overused buzzwords used by most players in the market, and our question is, “Are any of their solutions producing results?” Based on our interaction with clients, we think not. Insurers can have the greatest online systems, budgeting tools or retirement calculators they want but if it’s not getting to the man on the street in a language they understand, what’s the point.

It is for this reason that we believe the job of an intermediary is becoming increasingly important in the South African retirement fund market despite what the critics out there are saying about cutting out the middle man, going direct etc. Our question remains, “Who else is going to do the work on the ground?”

What work on the ground, you may ask? That personal attention each member of a fund in South Africa requires at this point in our history as a country. Our view is that at least once a year fund members need to be given the opportunity to sit down in a one-on-one, to be taken through a summary of their risk benefits and a replacement ratio calculation which will show in rand and cents exactly where they will be when they reach their retirement age should they continue contributing at their current rate. This should be followed by a short discussion on budgeting and debt management which should lead the conversation onto how they can increase their retirement savings contributions if necessary.

Another aspect we believe is adding to the retirement savings crisis in South Africa is employers that are allowing employees to choose low contribution rates to their retirement funds. We believe that young employees should be encouraged to contribute at least a total of 15% of their salary from the beginning of their careers. This would mean they could then adjust their spending around the remainder of their salaries and get used to the contribution instead of trying to adjust their lifestyles later in life to contribute more to make up any shortfalls.

Although we seem to be a long way off from fixing the retirement savings crisis we have as a country, we believe that with sound retirement advice to employers and giving personal attention to their employees the problems we have could be fixed sooner than we think.

Article by: Darren Hartley – Employee Benefits Manager – The People Compnay