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The state of savings and retirement planning in SA

What urban working households lay out on basic needs, debt, savings, and other lifestyle spending is described by Old Mutual’s Francois le Roux.

NASTASSIA ARENDSE:  I had a conversation with Francois le Roux, who’s a financial planner at Old Mutual Private Wealth Management. We spoke about the state of savings and retirement planning in South Africa, the case for financial planning advice, and where exactly in terms of numbers we are looking. We were talking about percentages when it comes to financial planning and retirement.

This is the conversation.

FRANCOIS LE ROUX:  We start by answering that by perhaps referring to the 2017 Old Mutual Savings and Investment Monitor, which is a research study that’s been going on since 2009. The latest results, the 2017 results, tell us that working urban households spend their money as follows:

About 15% goes into savings, 16% towards debt, around 7% to medical and insurance, and then comes the bulk of it, 62% is basically going into living expenses and lifestyle expenses.

The problem is that those lifestyle expenses tend to increase each year at the cost of reducing debt and investing. Unfortunately, that leads a number of people – in fact a lot of people – into a debt trap in the longer term.

Looking at it from another perspective, and with reference to the South African Reserve Bank’s latest Quarterly Bulletin, the September 2017 bulletin, in which they state that households save 1.6% of GDP, gross domestic product, at the moment, which is a very, very low savings rate. And of course that would impact ultimately on retirement provision also.

NASTASSIA ARENDSE:  So in terms of the people who can afford to retire in South Africa, what do the percentages look like?

FRANCOIS LE ROUX:  The percentage of working people who are actually okay to retire is only about 10%, which is an alarmingly low figure of course. Then within that 10% only 2% of people can actually retire and maintain their existing lifestyle. So there is a severe lack of sufficient provision for retirement and perhaps also of committing to proper personal financial planning.

An interesting statistic coming from research that was done in Canada on this point in fact, by the Investment Funds Institute of Canada, the value of advice for 2012 tells us that in households where there was a financial advisor advising such a household for seven to 14 years those households ended up with almost double the assets – of course including investment assets – of households that did not take advice from a financial planner or advisor. So once again I think it just makes the case for getting an advisor involved if you are not sure what to do and how to do it.

Just to give you a little sum in terms of what you need to do to save and prepare for retirement: if you wanted to retire at say, age 65, wanting to replace about 75% of your salary at that point, meaning that you would want to have the equivalent of 75% of your income at retirement and going forward, then that would mean that you have to save for 40 years, roughly just below 20% of your income. That goes to show how daunting the challenge is to actually save up enough to ultimately retire in good fortune.

NASTASSIA ARENDSE:  To what extent do consumers’ debt levels affect the retirement scenario in South Africa?

FRANCOIS LE ROUX:  I think it has a great effect. I think it’s a major contributor to the problem, particularly if you look at the level of overall household debt, which now stands at R1.5 trillion. That’s such a big figure it’s difficult to really visualise, but to break it down into more practical terms, that translates to 72% of the total annual disposable households’ income in South Africa at the moment. That definitely contributes to the lower savings rate in South Africa, which in turn of course would impact ultimately on retirement provision.

NASTASSIA ARENDSE:  What’s meant by a profession financial planning advice experience?

FRANCOIS LE ROUX:  If we break down the advice experience that a client can get from a professional financial planner, then that advice experience, as per research that has been done, tells us that about 20% of that value of the experience lies in client service and about 26% lies in portfolio or investment performance.

NASTASSIA ARENDSE:  That was Francois le Roux of Old Mutual Private Wealth Management.

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something not right here. sa’s debt to net disposable income is 74% and heading down . here in aus its 180 and rising!!!!! time for moi to pack for pofadder!!!

I often wonder with all the mis-selling of questionable retirement products that the life companies offered in the past, they now say 90% will not have enough at retirement. My question is who’s looking into what use to be the cartels?

To quote another article from a competitor “And before 2004 when former finance minister Trevor Manuel intervened to stop the PLUNDER, life assurance companies could take ALL OF YOUR SAVINGS if you did not keep paying the contributions.”


In my view one of the biggest problems was that people were allowed to cash out their pensions when they moved to another employer. As we all know, people are unable to save money, so when they get their paws on some cash they will spend it as soon as they can.

Up until about the 1980’s people retired at 65 and kicked the bucket by 70.Their money never ran out.Today if they’re lucky they retire at 60 and their money has to last from 15-25 years.The problem is so much bigger!

@ Bruce – I agree fully with you. In addition – is slavery really over? The likes of anc, zuma and the guptas will see to it that you always have too little to retire. SARS is nothing other than legalised thiefs.

“…by the Investment Funds Institute of Canada, the value of advice for 2012 tells us that in households where there was a financial advisor advising such a household for seven to 14 years those households ended up with almost double the assets – of course including investment assets …”

Well now my wife had a RA with Old Mutual with death benefit and a RA with Sanlam without death benefit.
She retired at age 64 instead of 65, so the penalty for early retirement was small thanks to Trevor Manuel.
Both RA’s were R500 per month and both ran for 20 years.
Old Mutual – payments made = 20 years x R500 per month x 12 months = R120 000 and the “payout” value at retirement was about R112 000 i.e. about 7% LESS than the capital paid in.
For Sanlam the payments made were also R120 000 and the retirement value was about R227 000 i.e. JUST more than double after 20 years.

Go figure for yourself

I am currently experiencing this first hand. I deposit R1030 (R500 and R530) to a RA with Old Mutual and then when I log on to the app to check the balance every month it only goes up by R750. After that, they add around R1.50 a day. I regret taking out this product. I will keep paying that amount until I am 55 about 29 years from today but I will focus my retirement strategies somewhere else.

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