2013 Old Mutual Retirement Monitor results

Retirement savings show need for reforms

2013 Old Mutual Retirement Monitor results
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South Africans may be increasingly aware of the dire state of their retirement savings, but the low savings rate needs to be addressed through legislative support for compulsory savings and increased education around members’ options at retirement.

This was revealed via the results of the 2013 Old Mutual Retirement Monitor. The annual survey, which measures pre-retirement perceptions among working South Africans, is the fourth annual survey conducted by Old Mutual and is based on 1180 face-to-face interviews.

Craig Aitchison, GM of Customer Solutions at Old Mutual Corporate, says a large portion of the population still has no form of retirement savings in place.

“Only 50% of all respondents list retirement as a specific savings objective. Strengthening the savings culture among South Africans has been identified by Treasury as the primary driver of the current retirement reform proposals,” he says.

It also emerged from the results that saving for education remains a high priority among respondents.  “Funeral policies continue to enjoy steady support while the incidence of formal retirement products has declined steadily over the past four measures and is at the lowest level to date at 58% of respondents,” he says.

For the first time, the 2013 Retirement Monitor also assessed the overall savings habits of respondents.

“Interestingly, total monthly savings differs significantly between members of retirement funds and non-members, with non-members typically saving almost R1 000 less than members.  This is strong evidence of the benefits of a compulsory savings vehicle and a key reason why we applaud this particular proposal by government,” he says.

While respondents seem less negative about their financial security in retirement than in  2012, Aitchison says the results show a concerning rise in retirement dependency among respondents. 

“As the pressure of rising costs weighs on South African households, respondents are increasingly looking to external sources such as the government and their children to support them after retirement. It’s a trend we saw last year as well and the concern is that this reliance on future generations only entrenches the cycle of poverty.”

Aitchison says it’s encouraging to note a continuing trend of respondents being increasingly better informed and realistic about how long their retirement savings will need to last. On average, respondents said their retirement savings will have to last them 17.1 years.

“However, while the figures are improving, they still remain relatively unrealistic,” he says.

As in all previous retirement monitors, members’ levels of engagement with and knowledge of their retirement funds remain very low.

“Just under 60% of respondents indicated that they did not know who their trustees are – an increase from 42% of respondents who indicated the same thing in last year’s survey. In spite of this, members still demonstrate high levels of trust in the trustees of their funds and on average rated their level of trust that their trustees would make the right decision on their behalf at 7.6 out of 10,” says Aitchison.

The survey also revealed some interesting insights into the preservation behaviour of respondents. Of the respondents who took cash on leaving the fund in the past 15 years, 61% accessed their entire entitlement in cash. “The damaging effects that this can have on retirement savings has become a major concern for Treasury, which has now proposed some kind of compulsory preservation vehicle for South Africans,” says Aitchison.

Aitchison says the 2013 Old Mutual Retirement Monitor results reveal a concerning lack of awareness and education about retirement annuities across all income, age and fund membership levels. 33% of respondents have only heard about annuities previously, while 29% have never heard the word ‘annuity’ used in the context of their retirement planning.

“Old Mutual research has shown that members often make uninformed decisions upon retirement. This has raised the question of how trustees and other stakeholders can better assist members on retirement – especially when it comes to annuities,” says Aitchison.

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