Your first few weeks of employment and how your employer motivates you are likely to determine how you plan for retirement, Kobus Hanekom, head of strategy, governance and compliance at retirement fund consultants Simeka, says.
“Day one of employment should be seen as day one of retirement,” he says.
Hanekom says that there is no better time to teach sound financial habits to young employees than in the first week or two of employment.
His advice follows the realease of the latest Sanlam Employee Benefits Benchmark retirement survey, which shows that only 20 percent of retirement fund members estimate that they will have sufficient savings for a financially secure retirement.
Hanekom says retirement fund members “will never be more ready to focus, pay attention and learn new habits than when they receive their first pay cheque. If employers do nothing else this year, implementing this strategy will be a great start and will make a significant difference.”
If you do not save enough for retirement, it will not only impact on you, but on your entire household and even the community in which you live, says Sanlam actuarial specialist Mayuri Reddy.
She says the advice retirees interviewed for the survey would give to younger people is: “Save, start planning and invest from a young age.”
When a focus group of young South Africans was asked about their saving habits, they indicated they tended to react to specific developments in their lives and did not follow a clear plan.
The view of financial planners is that many people don’t save for retirement because “there is always something that tends to get more attention, such as small children, a house, a car or the good things in life that they want to buy, and they only look at retirement when they are 55”.
Hanekom says that when you reach age 55 and decide to save more for the last 10 years, it is too late.
To compound the problem, the survey shows that a real advice gap exists. Nearly three-quarters of the pensioners surveyed said they received advice for the first time within 10 years of retirement.
Viresh Maharaj, the chief marketing actuary at Sanlam Employee Benefits, says that lack of proper advice is one of the key contributing factors to poor retirement outcomes. He says fund members appreciate financial advice and the need for guidance, given their lack of understanding.
The survey reveals that 48 percent of stand-alone retirement funds and 58 percent of umbrella funds say they have a formalised advice strategy in place. However, of these, 35 percent of stand-alone and 52 percent of umbrella funds consider offering factual information as sufficient.
“[Factual information] does not qualify as financial advice and is not nearly as effective,” Maharaj says.
Only 29 percent of stand-alone funds and 27 percent of umbrella funds provide actual financial advice.
He says the lack of advice is highlighted by the fact that more than two-thirds of the pensioners surveyed indicated that they did not preserve their retirement savings when changing jobs.
Many did not even understand the tax implications of not preserving their savings or the negative effect on their retirement-savings nest egg.
Maharaj says technology has a key role to play in enabling better outcomes for retirement fund members as it can provide advice at lower costs.
For example, robo-advice, which is still in its infancy in South Africa, could be used successfully to provide advice to more members, particularly when combined with well-structured defaults on investment choice and modern member communication services.
RETIREMENT INCOME CALCULATOR
Do you want to know what percentage of your income you are likely to receive as a pension in retirement? Try Sanlam’s Day One Member Tool at the link below.
To use the calculator you will need to know your:
* Total guaranteed package for the year: the total before tax amount your company pays you, including any allowances and bonuses.
* Pensionable remuneration: The annual income on which your retirement fund contributions are calculated – this is typically your salary less any allowances and bonuses and is typically 70 to 80 percent of your total guaranteed package.
* You will also need to know what percentage of your pensionable remuneration you and your employer jointly pay as contributions to your retirement fund.
* If a portion of the contribution paid by your employer is used to fund group life benefits for you or to pay costs, you also need to enter this information.
The calculator will work out for you the percentage of your total income that you will receive as a pension in retirement if you continue to contribute at your current rate (your replacement ratio). It will make a suggestion regarding the level of your salary you need to make as a contribution to your retirement fund in order to achieve a pension equal to 75 percent of your income at retirement. You can adjust this targeted replacement ratio as well as your retirement age to see how this affects your income in retirement.