Shock retirement numbers for South Africa

Representatives of the retirement and savings industry presented their submissions to parliament on Wednesday (19 May) on the Democratic Alliance’s proposed Pensions Funds Amendment Bill.

The bill aims to amend the current Pension Funds Act to allow pension fund members to obtain a loan, secured by a guarantee from a registered pension fund, to alleviate financial pressure during an emergency.

In this case, the bill makes direct reference to the Covid-19 emergency or any other emergency similar to Covid-19.

By enabling a member to access a pension-backed loan, that member will be able to leverage their pension fund investment prior to their retirement date, without eroding their provision for eventual retirement.

Lending institutions will be enabled to offer loans to pension fund members at competitive interest rates and over extended or deferred payment periods given that the loan is fully guaranteed, the DA said.

Concerns 

Submissions given by the industry largely acknowledged the good intentions of the bill, but warned that giving South Africans more power to access retirement funds early could prove disastrous.

One issue which was raised repeatedly is the poor culture of savings in the country. Savings in retirement funds at a member level on average is very low, the Institute of Retirement Funds Africa said in its presentation.

It provided statistics from within the industry showing that two-thirds of members have less than R50,000 in their funds.

Other available data shows how bad the retirement savings situation is in the country:

• The Federation of Unions of South Africa (Fedusa) said that only one in every three South African adults (including pensioners) has some form of pension, noting there are around 17 million pension accounts, representing as many as 13 million people. Adults aged 15+ make up approximately 42 million.

• The 10X South African Retirement Reality Report 2020 found that nearly half (49%) of South Africans do not have a retirement plan. Of the respondents who said they had some sort of retirement plan, 75% were worried about whether they will have enough to live on after they retire, or feel unsure about this.

• Several polls run by BusinessTech over the last three years showed that between 30% and 45% of readers simply do not put any money away towards retirement at all.

• The Sanlam Benchmark Survey for 2020 showed that 61% of pensioners can’t make ends meet.

• Alexander Forbes Member Watch analysis for 2019 showed 50% of members are expected to retire with less than a 20% replacement ratio (recommended is upwards of 70%) – and that the average benefit at retirement is approximately R350,000.

• Statistically, around 60% of fund members in employer funds have accumulated six months’ salary or less, particularly at lower salary levels.

• South Africa non-preservation has depleted savings levels. Additional premature access to retirement savings for employed fund members will result in considerable decimation of workers’ retirement savings.

These concerns were echoed by the South African Institute of Chartered Accountants (Saica) which warned that allowing access to leverage fund benefits for any reason could result in a significant reduction in retirement savings.

“South Africans have a very bad savings culture with only 10% of South Africans saving enough for retirement,” it said. Even compared to other poorer countries like India, South Africans are bad at saving responsibly.

Saica said that this lack of savings is coupled with South Africans extreme over-indebtedness, citing data from the World Bank.

Reform and alternatives 

In response to these and other concerns, the Association for Savings and Investment South Africa (Asisa) said that the country’s retirement landscape would likely benefit more greatly from more fundamental reforms.

The group said it broadly supports the concept of part of savings build-up in retirement funds being accessible for short-term needs at any stage and the rest being permanently reserved for retirement.

But, this must go hand in hand with preservation of this reserved portion until retirement, it said.

“A significant reason for low savings of most fund members is members taking all in cash when leaving their retirement fund on changing jobs.

“Legislative changes and much work by funds and their administrators will be required, but this will be constructive work,  an investment in the long-term financial security of South Africans.”

This will allow limited access for emergencies while still ensuring reasonable retirement savings and long-term, stable savings pool for long-term investments by funds, it said.

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