Londiwe Buthelezi

Less than a third of retired South Africans are able to maintain the lifestyle they had before leaving their jobs.

And on average, trustees of stand-alone pension funds believed only 29 percent of working members in their funds were on track to maintain their current lifestyle at retirement, a survey conducted by Sanlam this year showed yesterday.

Sanlam’s 2014 benchmark survey polled more than 900 retirement fund members, pensioners, trustees and principal officers. This year it also included interviews with trade union retirement funds with an average of R3.3 billion assets under management.

After retirement, it is estimated that individuals need about 75 percent of their previous income to maintain their lifestyles.

But figures presented by Kobus Hanekom, Sanlam’s head of strategy, governance and compliance, at a benchmarking symposium yesterday showed that the current default contribution rate used by most employers only got people up to 62 percent of the projected pension rate. For people who withdrew some of their retirement savings when they changed jobs, their projected pension rate was likely to be much lower, Hanekom said.

The retirement savings industry calculates that contributing 12.5 percent of one’s income to retirement savings over a period of 40 years will enable one to reach the 75 percent projected pension rate needed to retire comfortably.

Most people on a default option do contribute 12.5 percent of income towards retirement, according to the survey.

But this is mostly 12.5 percent of their pensionable income and not their gross income packages and that is where the disparity emanates.

“The reason for the difference is that pensionable earnings only equal 80 percent [of remuneration] and those people who are allowed to play around with it, their projected pension rate could even be 50 percent. So people should be asking, ‘this is 12.5 percent of what?’” Hanekom said.

Workers had to contribute more than the default to get to 12.5 percent of their total income package.

Lessening retirement savings even further was the fact that a number of employers allowed their employees the flexibility to reduce their pensionable earnings below 80 percent of total pay to increase their take-home pay.

With inflation exceeding growth in households’ disposable income, some employers saw this as an option for their indebted and struggling staff.

The BankservAfrica disposable salary index showed last week that salaries have grown by only 1 percent in real terms after inflation and other factors are taken into account.

Most employers fix pensionable earnings at 80 percent of total remuneration, but Hanekom estimated that between 10 percent and 20 percent of companies allowed flexibility around this.

“If you have a series of bad incidents, debt or whatever it is, in principle I think it’s a sensible thing to do as an employer because the person needs to get their personal situation sorted. But the problem is, many of those employees don’t understand what they are doing to their retirement.”

Danie van Zyl, the head of guaranteed investments at Sanlam Employee Benefits, said if people’s income just covered their expenses, it was perhaps difficult to save for retirement, but employees’ apathy was just as much of a problem.