There is a dire need for South Africans to be educated on financial retirement issues, an Old Mutual survey released on Tuesday has found.
Old Mutual’s 2006 Retirement Funds Survey says young professionals, active retirement-fund members and pensioners, in both the private and public sectors, receive insufficient or no retirement planning education.
The finding comes ahead of the National Treasury’s revised set of proposals for the reform of the retirement-fund industry, expected to be released soon.
The survey was conducted among a representative sample of 60 local retirement funds comprising 92 000 active members and 33 000 pensioners. The funds were taken from a cross-section of industry sectors.
Old Mutual Actuaries and Consultants manager John Kotze said interviews conducted with young professionals revealed they had ”negligible awareness” of the rules of the retirement funds to which they belonged. None of them could elaborate on the retirement benefits they would receive.
”The survey also showed that pensioners and current members of retirement funds who were three years from retirement did not feel fully prepared to make competent decisions about their retirement,” he said. ”Most members interviewed said they relied on brokers and employers to make retirement decisions on their behalf or provide significant guidance.
”This finding is consistent with the recently released National Treasury paper on contractual savings, which recognised the need to encourage this type of guidance.”
Those interviewed also generally assumed that their future pension increases would be linked to inflation. Pensioners took for granted that there would be provision for their spouse after their death.
Kotze said these findings only served to reinforce concerns about the low levels of savings in South Africa.
”The improvements in the economy, lower interest rates and easier access to credit are all contributing to the current ‘spend’ cycle. But if you are spending more than you are earning, then you can’t be saving for your retirement.”
Rob Rusconi, advising Old Mutual on retirement-fund reform issues, said: ”A carefully implemented combination of reforms such as motivating the preservation of retirement savings when changing jobs, the likelihood of individual retirement funds and the possibility of compulsory saving for retirement would go a long way to significantly improving pension levels at retirement.”
Grant Pote, general manager of research and development at Old Mutual Corporate, said there is concern about the lack of communication and financial advice being given to younger members of a fund.
Financial advice needs to be offered to all fund members at regular stages of their working career.
”A worrying aspect that emerged from the survey was that trustees of 93% of the funds surveyed believed that their communication was effective,” Pote said. ”This view was in stark contrast to the views of fund members, most of whom said they were only receiving retirement counselling in the five years before their retirement, by which time it is too late to improve what for many people is already a dire situation.”
He said: ”In the same way that you visit your doctor when you are physically ill, you should visit a financial planner about your financial fitness for a healthy retirement.”
Another finding of the survey is that fund governance is one of the critical management issues for retirement funds in the next three years.
Kotze said Old Mutual Actuaries and Consultants anticipates that trustees will actively develop, sign and manage their actions in accordance with a code of conduct.
A draft code of conduct has already been issued by the Financial Service Board with links to corporate governance strongly evident.
”This development is necessary, since the role of trustees in a retirement fund is very akin to the role of directors on a company’s board. If they have not already done so, trustees can anticipate formal trustee-training programmes, both for induction and for ongoing professional development, annual performance reviews and adherence to gift policies,” he said.
Trustees will become more conscious of conflicts of interest and will better manage their own actions and service providers in this regard.
”In an increasingly complex world, trustees need to have greater knowledge and expertise to ensure they are asking the right questions of the product and service providers.” — Sapa