JOHANNESBURG – Despite a pushback from labour unions regarding retirement reform, the majority of respondents in a new survey like the idea of participating in either a government or employer-sponsored pension fund.
Reform in the retirement industry is an effort to ensure that more South Africans can support themselves adequately during retirement. Estimates suggests that up to half of formally employed South Africans may not be saving for retirement in any form or vehicle. While some regulatory changes will be introduced early next year, no final decisions have been made around auto enrolment or compulsory retirement funds.
While labour unions appear to be concerned about the impact of reform and some sort of compulsory preservation on the financial vulnerability of their members, the majority of participants in a new survey have indicated that they like the idea of a compulsory fund. However, many have also highlighted the need for flexibility and the option to opt-out.
Speaking at the release of Old Mutual Corporate’s Auto Enrolment Research Report, which gauged South Africans’ view on compulsory retirement funds, Craig Aitchison, general manager of corporate customer solutions at Old Mutual Corporate, said that over the past few years, three different approaches have been debated, although it is unclear how many of these are actively being pursued.
The first is auto enrolment which means that employers are compelled to enroll their employees in a retirement fund. The system can either be mandatory or employees could be allowed to opt-out if they so choose.
Another option is “retirement exchange” where if the employer does not have a retirement fund, government creates a simple fund structure and retirement product providers can decide if they want to offer it or not – something similar to the Mzansi bank accounts.
The third option is for some kind of national pension fund, where employees make a contribution and receive a pension from government in retirement.
According to the research report, which surveyed 809 South Africans between the ages of 18 and 64 who did not own a pension or provident fund, 69% of respondents said that they are completely likely or very likely to choose to be part of a government-sponsored pension fund if it was introduced.
But participants were divided when asked if a government-sponsored pension fund should be compulsory or not.
Aitchison said that many customers believe they should have the right to choose if they want to be part of the fund. There was also some concern about whether they would be able to keep up with contributions due to inadequate monthly income.
Sixty-seven percent of respondents liked the idea of their current employer implementing an employer-sponsored pension fund.
Source: Old Mutual Corporate Auto Enrolment Research Report (5 = highest liking rating)
Where respondents were offered a choice between the two funds, they seemed to prefer an employer-sponsored fund to a government-sponsored fund (see below).
Source: Old Mutual Corporate Auto Enrolment Research Report (The arrows indicate that the reported percentages were higher in certain subgroups that participated in the survey.)
Aitchison said that one of the reasons why respondents preferred the employer-sponsored fund, is because they wanted more say – which they probably felt would be more feasible in an employer context.
He said that the research indicates that people who do not belong to a pension or provident fund are dissatisfied with their retirement provision.
One third of respondents believed that they should be contributing more than 15% of their salary to a pension fund, but only 10% said they were in a financial position to do so.