Millions of South African employees rely on the money saved in their employer’s retirement fund to provide them with an income in retirement. File Photo: IOL

CAPE TOWN – The 2018 Member Watch has the biggest membership and employer groupings data sample of all retirement fund surveys available in South Africa.

“Millions of South African employees rely on the money saved in their employer’s retirement fund to provide them with an income in retirement. For many people, this is their only formal savings for retirement. Unfortunately, too often, this money is not enough to sustain them in retirement,” says Michael Prinsloo, managing executive of research and product development at Alexander Forbes.

The 2018 Member WatchTM also identified a narrowing of the salary differential between men and women. The average salary for female members increased by about 47 percent to R211 038 in the 2018 Member Watch from R143 154 in 2010, while the average salary for male members increased by 41 percent to R241 831 from R171 576 in 2010.

Prinsloo said the trend of increasing normal retirement ages could clearly be seen in the findings of the 2018 analysis. A few years ago, the most common retirement age set by employers was 60 years. 

That has now increased to 65. 

“Increasing one’s normal retirement age by two years can add 8% - 15% extra income at retirement,” said Prinsloo. He said retiring at 65 rather than 55 could almost double a replacement ratio due to the compounding effect.

A comfortable retirement is, however, possible if employees contribute sufficiently from a young age and do not cash out when changing jobs. Members need to be given clearer and more useful information, with milestones indicating at which age certain achievements should be reached. 

For example: “Someone who is 40 years old should have saved 3.2 times their annual salary to be on track to achieve a 75 percent replacement ratio,” Prinsloo said.

The following factors, when combined, affect the income a member receives in retirement from a defined contribution fund:

  • the overall level of contributions made to the fund
  • the expenses deducted for risk benefits and administration costs
  • investment returns after fees
  • the portfolios the member is invested in
  • how the member’s salary has progressed
  • how much is lost to non-preservation along the member’s saving journey
  • how much of the retirement savings is used to generate an income
  • how much pension each rand of savings can purchase at the time of retirement.

BUSINESS REPORT ONLINE