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Retiring financially comfortable, how many are able to do so in South Africa today?

May 25, 2022

In this month’s edition, John Chikoki, Senior retirement fund consultant at Chartered Employee Benefits, shares extracts from the 2022 FSCA- Financial Sector Outlook Study relating to the Retirement Fund industry.

Under-saving for retirement remains a significant challenge in South Africa today. Most workers cannot afford to retire, let alone retire financially comfortable. Comfortable in this context, meaning being able to support their desired quality of life when they eventually retire.

The study conducted in April 2022, by Genesis Analytics and the Financial Sector Conduct Authority (FSCA) revealed the following:

  • Genesis Analytics noted that only 12% of the 3.6 million individuals within the retired people group received some form of income in 2020. Over 90% of retirees are unable to maintain their standard of living prior to retirement, and two-thirds of members have less than R50 000 in retirement savings, and that is usually their only savings.
  • The study indicated that since 2017, the average value of benefits paid out has slightly increased in real terms, averaging approximately R39,000 per month. However, the average contribution to pension funds has remained comparatively stable at around R900 per month in real terms.
  • Notably, South Africa’s pension fund coverage looks vastly different within the public sector compared to the private sector. Within the public sector, 92% of workers have a retirement product, while in the private sector, 50% and in certain instances, less, have a retirement product. The proportion of people with a retirement product is particularly low for people earning below R14,000 per month.
  • The study also revealed that there is limited demand for pension products within the lowest income groups, as they rely on the government’s pension support. The government old age grant pays R1,890 per month, to eligible pensioners, who satisfy the means test criteria. There are between eight and ten million South Africans who earn approximately R1,300 to R3,000 per month. They have little incentive to contribute to private pension funds, due to affordability challenges and the knowledge that they will be eligible for the old age state pension.
  • Many experts propose using the 75% rule as a general benchmark for what one would need to cover monthly expenses once they eventually retire in South Africa. For example, if an individual presently earns R10,000 per month, applying the 80% rule, such an individual would need a minimum of R8,000 per month towards expenses when they eventually retire to be still able to maintain their current lifestyle.

Widening retirement gap

The retirement gap has truly widened due to the COVID-19 pandemic, which has caused a reduction in salaries of some workers and retirement fund contributions that had to be placed on hold for a period of time due to companies’ cash flow pressures. Furthermore, numerous households also faced additional financial burdens of supporting family members who lost their jobs.

Despite the recent financial setbacks, chiefly caused by the COVID-19 pandemic, it is advisable to consider working longer than you would have wished before, if your health, family responsibilities, and job status allow. The additional working time allows you to save more and for the markets to continue to recover from past losses. Most importantly, delay accessing your retirement savings for as long as possible so you can hopefully have a larger, inflation-protected benefit when you eventually access your retirement savings.

To access the full report, please click here

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