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Many people in low-income brackets would rather save for funerals than for retirement.

Many people in low-income brackets would rather save for funerals than for retirement.

Their jobs do not have benefits such as a provident fund and medical aid, and they will have to depend on the government to take care of them in old age. Still, many are paying the little they have to burial societies that, in most instances, also cover their unemployed relatives.

If they used the money instead to buy a retirement annuity, they would be better off by thousands of rand within 10 years, according to Liberty Life.

Vuyo Mabindisa, owner of Vuyo’s Funerals in Orlando West, caters to low-income earners.

For R120 a month – which goes up every year due to inflation – clients get a coffin, a portable toilet, a tent, 40 chairs, two tables, a bus, two family cars and mortuary services.

The benefits never change, although the contributions go up each year. If the monetary value of the cover was R5 000 in 2000, it would be the same 20 years later unless topped up.

The main member is covered in the R120, as well as the spouse, eight children under 20 years and five adults.

Naniki Malakwane, 50, works as a tea maker for a private company. Her job has no benefits, except contributions towards UIF. She spends R160 a month on a funeral policy that covers her, her husband, three children, sister, nephew and two grandchildren.

If a loved one dies, she will get a coffin, two buses, a tent, chairs, tables, pots and a stove.

Malakwane doesn’t see the point of saving for retirement because she doesn’t have enough to put away. Also, as the breadwinner, she needs money for emergencies as her husband and sister don’t work.

Telling someone without a lot of money to save for the future is hard, says Bongani Sithole of Liberty Life.

He says many poor people take out funeral policies as danger cover, whereas a retirement annuity is a salary sacrifice. Death occurs at any time and people want to know there is money to bury a loved one.

“The fundamental issue is education. There is a great need to save for a retirement annuity, but companies have not been doing a great job educating people about that.”

Sithole says the upside of funeral cover is not having to take money out of one’s scarce resources to arrange a burial. The downside is that if the funeral company is not reputable, one could lose the money and be forced to pay for a funeral anyway.

The benefit of a retirement annuity is that the person paying is not left without an income after they stop working, he points out.

Using Malakwane as an example, Sithole says that if she started putting R160 in a retirement annuity at Liberty, and assuming that her contribution went up by 5 percent each year, she would get R27 277.03 in 10 years when she retired at the age of 60. - The Star