South Africans face a bleak retirement

Sixty percent of all pensioners interviewed as part of Sanlam’s BENCHMARK retirement survey told the interviewers they did not have sufficient funds to live on. Of these, 64% had to cut back on their living expenses and 31% had to carry on working.

This is a shocking statistic because these retirees mostly come out of the defined benefit environment where the company made provision for their retirement based on the number of years of service.

They are not the current working generation that has changed jobs seven times on average and cashed in their pensions along the way. This next generation of retirees—those people between the ages of 45 and 55—are facing, quite simply, a train wreck.

Dawie de Villiers, co-author of the survey and chief executive of Sanlam Structured Solutions, estimates that the number of people who have sufficient retirement funds will fall to 10%. This means that nine out of 10 South Africans who belong to a retirement fund will not have enough to retire on.

But perhaps what is even more concerning is that people have no idea how bad their financial situation is. The survey, which interviewed pensioners, working pension-fund members and pension-fund companies, found that half (50%) of retirement fund members interviewed believe that they are on track for their retirement planning, yet the average contribution from members’ monthly salaries is well below the recommended provision of 15%, indicating a general lack of awareness of the actual situation.

The total employer and employee contributions was shown to be an average of 11,7% (average employer contribution of 10,8% and employee contribution of 5,8%), falling short of the recommended average of 15%. Self-employed people showed that their retirement contributions are significantly less, at an average of 3,6% of their salary per month.

We also know that about 80% of the time people cash in their retirement funds when changing jobs.

Medical costs scare
The survey identified medical costs as the biggest expense in retirement. More than 80% of retirement funds do not provide post-retirement medical aids, yet many of those interviewed believed that their fund would provide medical cover and were therefore not factoring it into their retirement planning costs.

The cost of kids and parents
Another interesting development is that 50% of pensioners interviewed still supported family members. In some cases their parents were still alive and in other cases their children were still living with them. These changes—brought about by longevity, where pensioners still have living parents, and a more challenging work environment, which sees younger people living at home for longer—again turn retirement planning on its head.

You can no longer assume that by the time you retire you will no longer have dependents.

Another very worrying statistic is that 29% of pensioners still had debt. This highlights the importance of paying off debt before you reach retirement.

Facing the issue
The bottom line is that South Africans are facing a very real retirement crisis if nine out of 10 people will not be able to afford to retire comfortably. Who is to blame?

While certainly we need to look at how the industry communicates with its members, De Villiers says members themselves need to start to take responsibility for their retirement and not think that “someone else” will. De Villiers believes that the only way South Africans will improve their retirement savings is through compulsory savings—and based on these statistics he is probably right.

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