Nearly half of South Africans have no retirement plan whatsoever.

SA’s retirement time bomb not getting any better

THE latest 10X Retirement Reality Report paints a grim picture of retirement savings by South Africans, with roughly half having no savings plan whatsoever.

“The last five years have seen little meaningful change in South Africans’ inclination or ability to plan for retirement, according to the survey results from 2019 to 2023,” says the report.

“Roughly two-thirds of adults are either not saving at all for this purpose or their retirement plan is vague. The remaining third have a relatively solid grasp of what is necessary to fund their retirement years.”

There was a steady deterioration from 2018 until 2021, when the full brunt of the Covid restrictions came home to roost, destroying consumer confidence and eating away at the already meagre savings of households.

A key reason for SA’s abysmal savings rate is affordability, with 70% of survey respondents saying they cannot afford to save as they have nothing left at the end of the month.

This is corroborated by data from Statistics SA showing the basic nutritional food basket for a family of four was R3 430 (Household Affordability Index, March 2023). This means that even in dual-breadwinner households, parents are not earning enough even to provide the nutrition their families require.

There’s also a large disconnect between younger and older South Africans on the subject of retirement: younger respondents expect to retire earlier, while those aged 55 believe they will retire later.

“Although the percentages are low, more respondents below 35 years of age than those of 35 years or older indicated they plan to retire before turning 60,” says the report, based on survey data compiled by Brand Atlas. “This may be attributed to the idealism of youth and a lack of awareness among younger people on what it takes in the way of planning and savings to retire comfortably.”

The survey also highlights some difference in retirement preparedness between men and women, with 49% of women indicating they do not have a retirement plan, against 43% of men. Some 11% of men, more than double the 5% of women who responded, say they are diligently following a well-conceived retirement plan.

The latest survey, like those of earlier years, show women are more cautious than men when it comes to saving and investing. “Although a prudent, cautious approach to investing is admirable, it may ultimately be to women’s detriment, as only higher-risk investments, such as listed equities, can deliver inflation-beating growth over the long-term,” says the report.

Working people cash in retirement savings

Another worrying feature of the survey is that working people routinely cash in their retirement savings when changing jobs. Financial knowledge of retirement funds is relatively high, with 36% of respondents having a good understanding and a further 39% having some knowledge.

However, knowledge of fees is poor, with only 37% of respondents with a retirement plan able to answer definitely on the issue of costs. Another 37% had no idea what the costs on their investments were; 13% believed the fee depended on performance; while 13% believed they were not being charged at all.

Perhaps one of the most disturbing outcomes of the survey is that fewer people are retiring on their own terms. In 2021, the figure was 70%; in 2023 the figure dropped to 60%.

Slightly more than a third of retirees were “fairly” or “very confident” that their savings would last. “[This] makes one question the optimism of people saving for retirement who are confident they are on track – some may be sorely disappointed when the reality of retirement hits,” says 10X.

More sobering stats

It takes 40 years for a typical earner saving 15% of their income from the first day of work (and preserving their savings when they change jobs) to retire comfortably for 30 years. This assumes a real, after-inflation return of 5% after costs. More than half the respondents had a good idea of how long it takes to save, while 22% believed they could save for retirement in 20 years or less.

It’s no surprise that 71% of respondents were “partially or strongly” of the view that they would need to continue earning a living after their formal retirement date.

“The inconvenient truth is that a large proportion of South Africans cannot afford to stop working,” says the report.

Some 60% of respondents expect to maintain their standard of living in retirement, based on the accepted retirement industry replacement ratio (post-retirement income as a percentage of pre-retirement income). While some costs fall away or decrease – such as mortgage repayments, transport and clothing costs, and income tax – other costs increase, notably medical and healthcare.

“The difference between what South Africans expect their retirement to look like and the realities faced by those in retirement and approaching it, cannot be underestimated,” concludes the report. “Knowledge and information are key to closing the expectation-reality gap – in their long-term interests South Africans need to be better informed on the importance of saving, the power of compound interest, the consequences of not saving, the additional disadvantages that women need to overcome, and the impact of costs.”

Leave a Reply

Your email address will not be published. Required fields are marked *