Why do South Africans not save? South Africa’s overall savings rate is about 15 percent of its gross domestic product, and households, on average, have negative savings (meaning they are spending more than they earn).
Are we not saving because financial literacy is low, or is it because saving for retirement is, for many South Africans, a luxury?
These were some of the issues raised at the recent Liberty Corporate Employee Benefits Symposium held in Sandton recently.
Given the dire straits many retirees find themselves in, you might expect to see more people saving more for retirement.
“The opposite is true,” Thabo Dloti, the chief executive of Liberty Group, says. Employees choose low contribution levels to retirement funds, especially in their early working years, and 60 percent of those who change jobs don’t preserve their retirement savings.
Ant Lester, the managing director of Willis Towers Watson, says we need to ask the question: are pension provisions a priority to the majority of South Africans? “In the developed world, providing for retirement is a priority, but where there is a shortage of resources, allocating money to pensions is more difficult,” he says.
Lester and Dloti point out that employee benefit packages need to be more flexible in their design.
Pension funds in South Africa have seen two significant changes in the last 20 years: the shift from defined-benefit funds to defined-contribution funds, and the rise of umbrella funds. These changes occurred as our world of work changed – when contract jobs and having multiple careers became common.
“But there has been no meaningful change to the design of funds or in benefit design,” Lester says.
“Benefit provision needs to take a totally different turn. Many plans assume that people will have one job, one marital status,” Dloti says. “It misses the point completely; we need flexibility.”
Lester believes there needs to be broader social benefits for retirement fund members. “For many South Africans, saving for immediate needs is as important as saving for retirement. We need to look at how pension funds can possibly help people afford a house, using their fund credit as collateral. The same goes for education.”
To improve the low contribution rate, Lester says funds could also look at progressive contributions, where a smaller contribution is made in the early working years, and this increases progressively as earnings increase and less is spent on items such as education and housing. “People are better savers if you do something like that,” he says.
Lester also believes that a lot of life assurance that people buy is wasted. “There is wastage in the system that can be extracted so you can get more money in members’ pockets,” he says.