While the financial crisis is putting pressure on retirement savings, a positive trend in South Africa is that net retirement savings have reached their highest levels in a decade, according to Sanlam Employee Benefits on Wednesday.
The latest survey shows that net savings were at 12.4% in 2002 and then underwent a decline to 2008 before gradually picking up to a current level of 12.6%.
But Daniel van Zyl, head of Guaranteed Products, said this was still too low and needed to be 15%.
Lower growth due to the financial market conditions will result in less disposable income, so saving has to increase, said chief executive of Sanlam Structured Solutions, Dawie de Villiers.
The survey also found that the changes made in the 1990s to shift the risk and responsibility of retirement savings from the employer to the employee, have left many employees worse off.
Of concern is that of the one in five members who switched jobs, 70% cashed in their retirement fund.
Van Zyl says more guidance is needed from industry to ensure members make wiser financial decisions. He says one positive is that the moves to greater consolidation are bringing costs down, and hence improving returns.
But De Villiers cautions that simply switching to cash holdings in a crisis could lead to low net returns and worsen positions. He says it is crucial to ensure there is consistent exposure to growth assets.
David Gluckman, managing director of Sanlam Umbrella Solutions, says that to ensure a salary replacement ratio of 75% real returns of 4% are needed over 35 years.
Van Zyl believes net savings of 15% can happen in the next 10 years, which will result in many more people achieving the requisite 75% replacement ratio. Despite the current improvement, over 90% of South Africans have been found shy of the 75% ratio, according to some independent studies. — I-Net Bridge