'It's going to get harder to save'
South Africans still don’t save enough and current economic conditions in the country mean that it is only going to get harder to save for the future. This is according to Old Mutual Investment Group Economic Strategist, Rian le Roux, who said that the stagnant economy, with rising dependency ratios, means that saving for the long term is becoming ever more challenging.
Speaking at the 2018 Old Mutual Savings and Investment Monitor results briefing today, Le Roux said that people often make their worst investment decisions when emotions are running high. “Look at the money that was taken offshore in December 2001 and January 2016 and the rate that investors sold out of equities in 1998 and 2009, when the chips were down,” he says. “Beware of fear and greed when it comes to saving, as both these can cost you a chunk of your capital.”
Le Roux highlights that Ramaphoria rose extremely quickly, but faded just as fast. “Business just didn’t share the same surge of optimism as consumers in early 2018 following the election of Cyril Ramaphosa as president of the country,” he says.
He adds that against this backdrop, SA’s economic growth remains weak and this is cementing many of the country’s economic and social problems. “The economic contraction in Quarter 1 of 2018 was a huge shock and there is no evidence of any material improvement in the second quarter,” he explains. “The consensus GDP forecast for 2017 is 1.5%, with the past five year average growth being 1.3% and a potential growth figure of 1.3% too.
“In the absence of a higher actual and potential growth pace, it is going to be extremely hard to consolidate the fiscal situation, with sustained weak tax revenue growth amidst heavy spending pressure. This will entrench weak investment and growth in the country as savings will remain depressed,” he says.
“Ultimately, this will sustain our already bad unemployment situation, and dependency of people on family and government will rise further. Sustained slow growth also poses the risks of losing our last investment grade rating, falling deeper into junk territory, potentially triggering a rand slump. SA could, in such an outcome, increasingly fall off global investor radar screens, rather than attracting higher levels of investment needed for faster growth, more jobs, more savings and more investment.”
The bottom line is clear, says Le Roux: “Reviving confidence is crucial to improving SA’s longer term structural prospects, a crucial outcome for a healthier fiscus, more job creation and overall better standards of living for all.”
Meanwhile, the current gloomy situation will make it harder to save, says Le Roux. “Saving depends on the ability to save, which, in turn, crucially depends on more jobs being created – it all comes back to reviving confidence and growth. Already the ‘Sandwich Generation’ is getting more sandwiched, as demonstrated by children staying dependent on parents for longer and parents often also having to care for their own elderly parents.
“Added to this mix is the fact that Government is delving ever deeper into people’s pockets by taking a significant amount more tax, which could increase even further unless faster growth, and hence tax revenue growth, eases the pressure on the fiscus.”
Even if things do eventually get better, Le Roux says that you will still need to save much more. “Investment returns will be lower for the unforeseeable future and longevity continues to present an issue for savings levels. StatsSA has shown that in 2002 the people over 75 totalled 1.9% of the population, compared to 2017 where the same age group totalled 2.7% of the population,” he explains. “The savings challenge facing South Africans is aggravated by the population retiring too early – the average retirement age is about 60 in SA compared to the global norm of around 65.”
When it comes to how much savings you need to retire, Le Roux says that estimates differ widely, but it’s most likely more than you think and people should make sure that they are saving enough to be able to retire comfortably. “However, only three factors will determine how to get to the magic number of enough capital: how long you save for, how much you save, and your investment return. It is important to remember that how much you save is really the only one of the three under your control.
“Ultimately, analysing your financial situation in detail is a conscious decision. You need to ensure you fully understand your provisioning for future liabilities or expenses,” he adds. “So save more, save much more, and shift your mindset to a lifetime focus on financial affairs rather than just making life stage decisions.”