Even people who have retirement plans say they will have to continue working after reaching retirement age because they cannot save enough.
South Africa is sitting on a retirement time bomb, with only 6% of the country’s population on track to retire comfortably, while half of the country’s adult population (49.2%) is living below the poverty line.
According to the sixth edition of 10X Investments’ Retirement Reality Report 2023/2024 based on the findings of the 2023 Brand Atlas Survey, the majority of South Africans have not formally planned for retirement and of those who have are not confident that they are on track to support themselves for the long-term considering inflationary pressures and the economic climate.
Brand Atlas tracks and measures the lifestyles of 15.4 million economically active South Africans, defined as those living in households with a monthly income of more than R6 000, older than 16 with, internet access through online completion surveys.
Tobie van Heerden, chief executive officer of 10X Investments, says this year’s survey shows that there has been little fundamental change in South Africans’ inclination or ability to plan for retirement compared to the findings from last year’s report, although there was an increase in the number of people recognising the importance of having a retirement plan in place.
Consumer confidence, as measured by the FNB/BER Consumer Confidence Index, has been negative since the last quarter of 2019. When Covid-19 hit, it dropped to a record -33 points, recovered to about -10 points in 2021, but dropped again, hovering around -20 points in 2022 and the first half of 2023.
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Big difference between expectations and realities of retirement
“The difference between what South Africans expect their retirement to look like and the realities faced by those in retirement and approaching it cannot be underestimated. Knowledge and information are key to closing the expectation-reality gap.
“It will be in the long-term interest of South Africans to be better informed about the importance of saving, the power of compound interest, the consequences of not saving, the additional disadvantages that women need to overcome and the impact of costs,” he says.
About half of the respondents who had a retirement plan indicated that their plans were ‘probably’ or ‘definitely’ on track, with some variation across age groups. It is significant that 29% of the respondents older than 50 indicated that their plans were ‘definitely not’ or ‘probably not’ on track.
Van Heerden warns that it is extremely difficult to correct any deficit in savings after reaching 50, and then you must invest at least 30% to 40% of your monthly salary in retirement savings to comfortably retire.
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People are unable to save for retirement
Almost three quarters of the respondents (72%) whose plans were not on track gave ‘I am not able to save enough’ as a reason. Van Heerden says this ties in with reasons given for not having a retirement plan in the first place, where 70% of the respondents without a plan agreed with the sentence ‘I cannot afford to save, I have nothing left over at the end of the month’.
Van Heerden says the survey responses underline the harsh economic realities for the majority of South African consumers.
“Year after year, we see a large proportion of respondents who have a partial or strong view that they will need to continue earning a living after their formal retirement date.”
Only 37% of the respondents who do have a retirement plan could give a definitive answer on the costs, as an annual percentage of assets, of their retirement investments. Another 37% had no idea what the costs on their investments were, while 13% believed that the fee depended on performance and 13% believed they were not being charged at all.
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Concern that women are saving even less
Van Heerden also points out that there are concerns about women’s financial health. “Over the years, women have consistently been rated lower than men in most metrics concerning financial wellbeing and retirement planning.”
Half (49%) of all female respondents to the survey indicated that they do not have a retirement plan, compared to 43% of the male respondents. More than double (11%) the number of men said they were diligently following a well-conceived retirement plan, compared to only 5% of women.
However, women (30%) tend to save more than men (26%), while men tend to invest more (24%) than women (14%).
Van Heerden says although a prudent, cautious approach to investing as demonstrated in the report findings is admirable, it may ultimately be to women’s detriment, as only higher-risk investments, such as listed equities, can deliver inflation-beating growth over the long-term.
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Other factors affecting people’s ability to save for retirement
He also points out that stagnant gross domestic product (GDP) growth, large-scale retrenchments and the impact of Covid-19 resulted in people increasingly changing their jobs. According to the report, 56% of working people changing jobs admitted to cashing in their retirement savings.
Fewer people are able to retire on their own terms, Van Heerden says. “In the 2021 report this figure was 70% but this year it dropped to 60%, one of the most significant statistics to come out of the survey.
“This trend reflects the challenging economic times we live in, indicating an increase in employers compelling their older workers to take early-retirement packages.”
The survey showed that only just over a third (35%) of the retirees who had saved for retirement indicated that they were ‘fairly’ or ‘very confident’ that their savings would last.
It is also significant that 2% of retirees who participated in the survey said they had already run out of savings, meaning they were relying either on family or state support.
