Retirement in South Africa seems to be growing increasingly filled with struggles. A recent report commissioned by Alexander Forbes is an analysis of the largest groupings of data complied from all retirement fund surveys in SA, and some of the facts it reveals are shocking.
One of the report’s key findings was that at the end of employment, over 50% of South Africans rely on saved money in their employer’s retirement fund to support them. However, this amount often fails to sustain their lifestyle after retirement.
“Millions of South African employees rely on the money saved in their employer’s retirement fund to provide them with an income in retirement. For many people, [these are] their only formal savings for retirement. Unfortunately, too often this money is not enough to sustain them in retirement,” says Michael Prinsloo, managing executive of research and product development at Alexander Forbes.
The 2018 Member Watch report reveals a narrowing of salary differences between men and women, showing that female salaries have increased this year by 47% while male salaries have increased by only 41%.
Another trend the analysis exposes is the increase in retirement ages. In earlier years, workers would retire at roughly 60 years old, while nowadays the average age of retirement is 65. This shift is due to the increase in payout that employees are likely to receive if they retire later in life.
“Increasing one’s normal retirement age by two years can add 8% – 15% extra income at retirement,” says Prinsloo. He also stated that retiring at 65 rather than 55 can almost double a replacement ratio due to the compounding effect.
It is within reach for locals to achieve healthy retirement saving if certain aims and milestones are kept in mind.
“Someone who is 40 years old should have saved 3.2 times their annual salary to be on track to achieve a 75% replacement ratio,” Prinsloo says.
The following factors will have an effect on how much an employee can receive upon retirement from any particular contribution fund:
– Overall level of contributions made to the fund
– Expenses deducted for risk benefits and administration costs
– Investment returns after fees
– Portfolios the member is invested in
– How the member’s salary has progressed
– How much is lost to non-preservation along the member’s saving journey
– How much the retirement savings will be used to generate an income
– How much pension each rand of savings can purchase at the time of retirement.
“Employees largely rely on their employers and the trustee-provided choices, as evidenced by fewer members making investment choices. This highlights the importance of default investment portfolios and we have also seen the importance of fund-supported solutions, such as annuity strategies, to help employees navigate to retirement security. There is an opportunity for companies to help their employees along their full financial journey,” said Prinsloo.