Millions of South Africans rely on the money saved in their employers’ retirement fund to earn an income in retirement.
This was revealed through a recent Alexforbes Member Insights publication, which highlighted that for many people an employer’s retirement fund is their only formal saving for retirement.
The notion is further supported by this 2021 publication by Alexander Forbes, which also revealed that 65% of members aged between 20 and 30 are expected to live on less than 60% of their final salary when they retire – purely because they have not saved enough during their working lives.
The financial situation of young professionals is further complicated by their living expectation, demands and complexities involving real, basic day-to-day needs such as housing, transportation and health services.
“Retirement savings is of low priority for many, but research shows that it is critically important for young professionals to take responsibility in reaching a reasonable income in retirement – the sooner the better,” said Penelope Gregoriou, technical investment specialist at Alexander Forbes.
The aforementioned number of 60% is expected to drop even further due to low contributions and not keeping retirement savings invested when changing jobs, warned Gregoriou.
Research by the publication found that a retirement fund member who has actively increased retirement fund contributions by 0,25% each year since 2012 would have achieved a 2% increase in salary contribution rate by 2020.
A small incremental increase such as this can potentially lead to an almost 10% improvement in expected retirement benefits for younger members.
The key underlying issues compromising pension outcomes are apparently largely due to younger members:
- choosing lower contribution rates to increase their take-home pay;
- having little or no access to relevant information;
- not clearly understanding what their options are at critical points in their financial journey;
- not knowing the long-term consequences of the financial decisions they make today; and
- not having access to financial advice or financial counselling.
