South Africans waking up, but still underproviding, Old Mutual retirement survey shows
Findings of the 2012 Old Mutual Retirement Monitor, which were released today, suggest that despite increasing financial pressure from the recent financial crisis, many South Africans are showing improved levels of savings for retirement.
“There seems to be a growing awareness that they are not adequately prepared for their retirement,” says Bongani Madikiza, MD of Old Mutual Corporate. “A notable finding from the survey is the reduction in the number of people who anticipate relying on cash savings in retirement. When asked about the savings, investments and other sources they will draw on in retirement, respondents said that they expected only 20% of their retirement funding would come from cash sources. This figure dropped from 21% in 2011 and 29% in 2010.
“It looks as if the realities of the past few years have made people much more aware of the impacts that market conditions can have on cash savings,” says Madikiza.
This growing realisation, coupled with 2012’s slightly improved economic conditions, has largely reversed the decline in the use of formal retirement savings products witnessed in 2011. ”Usage appears to have been restored to 2010 levels,” he says.
According to the data, 33% of respondents own a retirement annuity - up from 24% of respondents in 2011. It’s encouraging that approximately 58% of respondents belong to a pension or provident fund - an increase from 51% of respondents in 2011 and 57% of respondents in 2010, says Madikiza. “However, the fact remains that about one third (31%) of respondents do not have any formal retirement product at all.”
The results of the 2012 Old Mutual Retirement Monitor also indicate a bounce back in the uptake of short-term insurance and medical aid policies.
According to the data, 33% of respondents had some form of short term insurance, an increase from 24% of respondents in 2011. Meanwhile, 54% of respondents have medical aid savings in place, which is a marked increase from both 2010 (40%) and 2011 (39%).
The results of the 2012 Retirement Monitor also suggest a slight increase in awareness of issues around their retirement funds.
The proportion of respondents who indicated that they were not sure if they would have enough money to retire on declined from 23% in 2011 to 20% in the latest measure. “The fact that more respondents are willing to take a view on their retirement funding adequacy points to an increasing recognition of the need to take ownership of their retirement saving responsibilities,” says Madikiza.
There is also greater awareness among retirement fund members of who their trustees are. “In the latest survey, 57% of respondents are able to identify their trustees either by name or by company, up from only 35% in 2011,” says Hugh Hacking, Head of Retirement Fund Solutions at Old Mutual Corporate.
Hacking agrees that the shock effects of the financial crisis are the likely reason for this increased awareness.
However, he stresses that this figure is still too low and there is still a dire lack of member engagement from their retirement funds.
“There is still very little inclination among members to involve themselves in the trustee election process. 90% of respondents who are fund members indicated that they did not vote in their most recent trustee election. However, in spite of this, members remain very trusting of their trustees and are mostly confident of their abilities and willingness to act in their best interests,” he says.
Hacking says this and a few other responses from the survey remain very concerning and he urges members of retirement funds to take greater ownership of their retirement investments.
Another concern is that 64% of respondents said they usually spend all the income they earn and are unable to save anything. This figure increased dramatically from 39% of respondents in 2011 and could have major consequences on the growth of the economy in the future.
“As the pressure of rising costs weighs on South African households, respondents are increasingly relying on their children and the government to support them after retirement. This reliance on future generations only entrenches the cycle of poverty,” says Hacking. Also, an increased number of people plan to work past retirement.
Meanwhile, despite most people taking cash withdrawals, there appears to be a growing realisation that preservation is important. “As was the case in the past two Retirement Monitors, the vast majority (66%) took their entire available benefit when withdrawing from their fund. This remains an area of major concern for the South African retirement industry. Unfortunately economic realities see these retirement benefits spent on immediate needs,” says Hacking.
What is interesting to note, he says, and which corresponds with our own experience, is that preservation is more likely to occur when the respondent received some form of financial advice.
“It’s apparent from the results of the 2012 Old Mutual Retirement Monitor that South Africans are responding to the more positive sentiment in the economy. However, the concern is that this sense of optimism is mainly due to people using their savings to finance everyday living expenses at the expense of long-term financial goals such as retirement,” concludes Madikiza.
Epic Communications (Pty) Ltd
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