Durban - Too few consumers are saving for their retirement and are increasingly turning to family and friends for loans as they battle to make ends meet.
These were among the alarming research findings presented at the Institute of Retirement Funds Africa’s annual conference in Durban over the past two days.
The event, which drew more than 1 000 retirement planners, pension fund trustees and financial sector experts from across the country, is the biggest of its sort on the continent.
Michelle Acton, principal consultant of Old Mutual Corporate, presented five key findings of the company’s Savings and Investments Monitor 2016.
These included a worsening in households’ overall financial positions, increased dependency on family support, changing spending patterns, an increase in the use of personal loans and the need to break the cycle of not saving for retirement.
The research surveyed working members of 1 000 households living in metropolitan areas, to understand their behaviour and attitude to savings and investments.
“Over the last year there was a deterioration in the financial state of households. Thirty-eight percent of households said they were in a worse financial position this year than they were last year, two in three families felt they were in a higher level of serious financial stress and 49% of households said they were saving less than they were last year. Overall, we are seeing a negative savings rate,” Acton said.
More than half the families interviewed (57%) reported that in the past 12 months their expenses had exceeded their income. To balance their budgets, they had cut back on spending on “luxuries”. The top four being holidays, eating out, entertainment and alcoholic beverages.
But households said they were also cutting back on “essentials”.
They listed these as DStv, assistance payments to family members, electricity and water consumption (and switching to prepaid) and armed response services.
Acton said more than 40% of households were not saving in a pension, provident or retirement fund, and the percentage of people who felt they would depend on children during retirement had increased to 45% - which was problematic, considering their children’s financial positions.
“There is a reduction in the belief that the government will look after us in retirement, but when you interview families and ask them if they are expected to support a parent in the future, 58% said yes, so there is a huge amount of dependency across all income groups,” she said.
Households’ confidence in the economy had also plummeted from 55% to 31% among respondents.
Acton said 26% of households were part of the “sandwich generation”, supporting both elderly parents and children, while there had also been a rise in the use of personal loans from banks and microlenders.
“The incidence of borrowing from family and friends has increased significantly, especially at the lower-income levels which (shows) how family units have to work together,” she said.
One in two mothers interviewed was a single mother supporting children, of whom one in three was also supporting her parents on her single income.
“Only 12% of fathers were contributing regularly to maintenance, which is significantly lower than one would expect,” she said.
Acton said 50% of people aged below 25 were still living at home, and 12% were saving for lobolo, while 38% were saving towards retirement.
“Despite the fact that we all know that the earlier you start the better, few individuals are starting to save towards retirement at a younger age,” Acton said.
She said that given the state of the economy it was vital that people saved, but many did not have the money to do so.
“Yet we all know it is critical and that if you don’t save for retirement you are going to be in this continuous pattern of the sandwich generation,” she said.
Viresh Maharaj, chief marketing actuary at Sanlam Employee Benefits, said a key finding of the Sanlam Benchmark 2016 report showed that many employees who were saving for retirement were losing out financially because they did not preserve their retirement savings when resigning from jobs.
“Individuals need to preserve their retirement fund savings. If you stay invested, a lot of other stuff can sort itself out and you may be marginally better or worse with other decisions, but if you withdraw your retirement funds when you change jobs you will definitely be worse off,” Maharaj said.
He said that the members who withdrew their savings to pay off their bonds incurred tax and lost out on the benefits of compound interest and superior cost structures within retirement funds.
“You are getting something that is very cheap and that is giving you excellent returns relative to retail, and it is the most tax-efficient vehicle,” he said.
Daily News