If South Africa is to achieve the 6% Gross Domestic Product (GDP) growth as envisaged in the government’s economic plan, the gross national savings rate as a percentage of GDP needs to increase from the current 13% to 25%, says Paul Hanratty, managing director of Old Mutual.
Speaking at the Old Mutual retirement reform conference held in Johannesburg, Hanratty lamented the low levels of saving particularly by individuals.
“The 6% target of GDP growth requires investment from the government, corporates and individuals. The current household savings of less than 0,5% of disposable income is not enough.”
Hanratty said a holistic approach was needed in order to raise South Africa’s savings rates.
“A conducive savings environment needs to be created through tax incentives, stable inflation and real return on savings.” Hanaratty also proposed that the formally employed should be compelled to save for retirement and to preserve savings.
“Of critical importance is that concerted education efforts need to be undertaken in order to encourage savings, highlight the dangers of poverty at old age and communicate the virtues of saving.”
He added that special products, incentives and distribution mechanisms need to be developed for markets which were previously not accessed.
“Financial institutions also need to partner government with a view to
providing suitable products for clients with low and sporadic income.”
Also speaking at the conference, Tim Cumming, managing director of Old Mutual Corporate, observed that unlike Western Europe and the United States (which are grappling with ageing populations), SA has a large youth population.
“About 33% of South African’s are under the age of 15 years. More than half are under 25 years and only 6% are 60 years or older,” revealed
Cumming.
But he pointed out that within the next two generations our demographic profile would more closely mirror those of Western Europe and the US.
According to Cumming, this presents a challenge to the government to develop or amend policies affecting retirement provision.
“The challenge for financial service providers is to develop products and services which cater for the differing characteristics of a non- homogeneous demographic mix, but one which will converge over time,” said Cumming.
He also pointed out that increasingly; investments will be controlled by individuals and affinity groups such as women, rather than retirement funds and institutions.
“This also presents significant opportunities for flexible innovative products to protect capital and provide retirement income,” said Cumming, adding that there is a need to adjust products, marketing and sales to meet the unique needs of women. – I-Net Bridge