Why only 6% of South Africans can retire comfortably

‘High degree of indebtedness impedes saving.’

JOHANNESBURG – A high level of indebtedness prevents many South Africans from saving for retirement, a financial planner says.

Speaking at a retirement round table hosted by the CFA Society South Africa, Wouter Fourie, CFP® and the Financial Planning Institute of Southern Africa’s (FPI) Financial Planner of 2015/16, said the reality is that debt is one of South Africa’s biggest problems.

A recent World Bank report called South Africans the biggest borrowers in the world. Eighty-six percent of South Africans borrowed money last year, he said.

“Now we ask ourselves why don’t we have money? Why don’t we save money towards retirement? Because we don’t have money. We’re so in debt at the moment and servicing the debt levels that we’re not able to save.”

Only about 6% of South Africans can maintain their standards of living in retirement, he said.

One of the reasons South Africans don’t save is the culture of no planning. Professional planners have a significant role to play to foster a relationship of trust with consumers and to convince individuals that it is important to have a financial plan.

“Without a target how would you know when you miss the target? You will never know and it is exactly the same with a decent financial plan.”

While some South Africans don’t save for retirement at all, many aren’t saving enough and aren’t preserving their retirement benefits. People are changing jobs more frequently than in the past and have an opportunity to access their retirement savings every time they resign.

Inadequate exposure to growth assets is also cause for concern.

Many investors move their pension fund investments to money market (cash) investments in the years before retirement because they are considered “safe” investments, Fourie said.

Moreover, many South Africans are supporting children and parents, often to the detriment of their own retirement planning.

The significant levels of unemployment also mean a lot of consumers are struggling to survive and aren’t in a position to accumulate a nest egg.

Fixing the problem

The first step towards financial independence in retirement is budgeting and understanding that you shouldn’t spend more than you earn, Fourie said.

It is also important to educate people to draw up a proper budget.

Another step is to gradually enforce retirement savings.

Fourie said it would be very difficult to compel employees to save 15% of their salaries towards retirement, but government could consider gradually introducing mandatory retirement savings with increases of for example 1 percentage point each year in order to reach a 15% contribution rate over time.

Education around retirement savings should already be introduced at school level, he said.

In order to change the landscape South Africa also has to foster and incentivise entrepreneurship. Overregulation has to be addressed to make it easier for enterprises to do business and create jobs, he said.

National Treasury has embarked on a significant regulatory reform process to encourage household savings and improve the financial situation of especially vulnerable individuals.

Some of the current reform proposals include default options that would benefit retirement members in the long run in cases where they failed to exercise specific options (for example choices around investment or preservation).

Philip Bradford, president of CFA SA, said initially the reforms wouldn’t have much impact on South Africans who are drowning in debt.

However, the only way to improve the situation was to start paying off loans, as this was effectively the first form of saving.

Bradford said for many people who aren’t investors the debt incurred to buy a house was a positive step as it entrenched a compulsory form of saving.

But ultimately, retirement reform won’t be a silver bullet.

Michelle Dubois, legal marketing specialist at Liberty, said it is never too late to start saving for retirement. Even for South Africans in their forties that may only change jobs several years from now, some form of compulsory preservation will make a difference to the pool of funds available when they retire.

“Every month that goes by that you are not able to access those funds you are in a better position immediately,” she said.

National Treasury stressed last month that new regulations wouldn’t deny members access to their retirement funds although they would be encouraged to preserve. If more stringent preservation rules were to be introduced in future, members would still have access to a certain portion of their funds.



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South Africans are the biggest borrowers in the world you say? Well the most effective savings vehicle in SA will then be an investment in micro-lenders! Those who save, own the micro-lenders, while those who consume
borrow from them. They call is capitalism.

Wealthy people think differently from poor people. Your wealth at retirement is only the reflection of your thought process during your younger years.

There are hundreds of reasons why we end up without enough. I think a certain blame goes to financial product sellers. People put a few hundred rands into a RAF every month and get lots of literature showing pictures of elderly people picking roses and playing with grandchildren. That product will NEVER buy that lifestyle, but it does help pay for the adviser’s shiny new BMW. Good mathematical education is sadly lacking.

That is why you need to work with a CFP, not and insurance broker! Not all advisers/planners are CFP professionals! There are only about 4,500 CFP Professionals in SA and 157,000 worldwide. CFP professionals have post graduate qualifications in financial planning and have to pass a board exam before receiving the designation as a CFP. Most CFP’s work on a fee basis and are not commission driven. Go have a peek at his video link.

Today we also have many items of expenditure which our parents didn’t have. We have to pay for security or live in a gated community due to crime which wasn’t necessarily the case with our parents. We pay a lot more for school fees whilst their kids received free education. Our generation typically stay further away from work and travel more, since property close to the city centre has become prohibitively expensive. Government health care isn’t what it used to be and people therefore opt for private health care. All these things put a strain on the consumer’s ability to retire comfortably one day.

You are absolutely correct.
Then there is mom and dad’s car payments, mom and dad’s smart phones (and one each for the children), the flat screen in the lounge and one in the bedroom (and perhaps one in the family room), mom and dads clothing account, golf club fees, etc etc

Your statements are so wide off the mark that maybe you need a reality check. I moved my parent to a gated environment for security reasons and access to frail care – this on their meager pension after working for a government department for 45 years. My schooling certainly for free so not sure where you extracted this notion. In my parent era they could only borrow to buy a house but the installment was not permitted to exceed 25% of gross salary less tax. I in turn was not permitted to borrow more than 4 times gross salary for a house and I bought my1st house in 1976. Buying a house today seems to be more driven by bling rather than functionality and affordability (and here I generalise)
Regrettably many of todays youth in their 30 – 40 are a now society, must have plenty of shiny things in their lives (and banks and retailers are happy to lend you funds for purchases) without any consideration for how they are going to meet the financial commitments in the future. Very little consideration is given to the fact that all the bling requires some form of maintenance over its life and this too takes hard cash – to borrow to settle normal running expenses is an exercise in folly. So life is very simple you earn a salary of “x” if you exceed this figure through repayments and other cash payments you are technically insolvent – and maybe you need to quickly reassess your lifestyle. The only thing driving todays poor savings is peer pressure to have it all latest smart phone, mega expensive car, fancy house which you can ill afford, and then with all this debt as interest rates turn higher so the screws tighten and you end up having a fire sale of all your bling. So the hardships you are experiencing today are quite literally no different to my parents era, my own, or my kids – we all just need to just be sensible about debt.

Grahamcr. The obvious point, which the author made, was that “people don’t save enough” and yes you are correct, people waste money on vanity purchases. However, there is no denying that the last few decades saw immense change not only in South Africa post 1994, but also in the world in general. (I matriculated in 1989 and we paid R100 school fees per annum per family and it was voluntary!) Especially technology wise, the world is a completely different place today and there is no shortage of examples. This was the one point I was trying to make – that our world is changing drastically and this change places additional change on people’s ability to save EVEN if they have the discipline. PS Your parent and his/her circumstances for retirement is only one example.

Is that all the CFP’s can offer us as advice? Have less debt and you will be able to retire- Is that it? They have been re-hashing this “advice” for years… The financial industry has been telling people to budget for decades now- Are the majority of us budgeting? – No. It’s not working guys…try something new. Here is my solution: Forget budgeting, there are only two ways to have more money: Save more and earn more. Invest your savings into income producing assets (not annuities). Constantly work at earning more by improving your skills, education, knowledge, work ethic, starting businesses etc. Thats it- Save more and earn more.

Disagree with your comment about budgeting. It is essential if one hopes to have any discipline in financial affairs. Yes, try to earn and save more, but unless you can see the comparison between income and outgo, you are heading toward the debt trap. The old saying “penny wise pound foolish” is very apt.

No need for budgeting the solution for more money is to earn more, oh wait didn’t 50 sent recently declare bankruptcy.

More money without discipline isn’t the solution, more money only leads to lifestyle inflation, have more money> spend more money > need more money.

Budgeting is an important tool no matter who you are.

@Borga I didn’t say earn more and spend more, I send earn more and save more. Trying to get somebody in debt to budget is like trying to get a fat guy on to a fad diet. At some stage his discipline will run out and he’ll have a massive binge. Same goes for the indebted guy- at some stage his discipline will run out and he will splurge on a new car/boat casino….whatever. The fat guy needs to eat a little less and exercise a little more, the indebted guy needs to earn a little more and save a little more.

As the saying goes “as jy dom is, moet jy voel”.

If people are don’t want to listen and budget, then they must not complain when they reap what they have sown.

So your business you are proposing works without a budget or forecasts and strict controls? Planning to fail?

Maybe it also has to do with the fact that South Africans are forced to privatize so many parts of their lives, that the government SHOULD be providing, but due to so much corruption and theft, we have no choice?

We HAVE to privatize:
Health Care
Transportation (public transport is no existent in Gauteng)

This adds up. There is actually no room for saving, because above and beyond our taxes, we are paying out the rear for so many other things.

What you write is true, but you forgot to add that in other countries the pension paid by the state is enough to live on, unlike in SA. This means that it is even more important to save in SA. More than 40 years ago I saw this in a book: “Remember, there is always somebody who earns less than you and he still manages to survive.” I have known people who bought new cars every 2-3 years, while I used them for 8-10 years and always bought second hand ones. Now I have a nice nest egg while they are worried what happens in a few years time when they will be forced to retire. Unfortunately lot of people, if not most, unable to resist temptation if hey have any savings, that is why life insurance and pension plan is the only way they can save.

I offer two pieces of advice: 1. The book “The Richest Man in Babylon” by George S Clason should be a compulsory read in grade 10. Within one generation, this scenario would change. 2. If any of you have not read it, place it first on the budget for next month 🙂

Part of the reason why South Africans don’t save for retirement with insurance companies, is the fear of being ripped off with ever-escalating fees for everything from performance to advisor to maintenance – you name it.

And this is where government can create an alternative national retirement scheme – much like the RSA retail savings bonds – with limited or preferably no charges.

In my opinion, insurance companies in SA are ruthless profiteers.

I’m actually surprised it as high as 6%. if one allows for very expensive medical procedures which are not covered by your medical aid systems – then I am syre 6% is on the high side

End of comments.



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