It’s no secret that people need to save more, but there is a disconnect between the ’now’ and their future senior selves which prevents them from taking steps to do this,” says Vickie Lange.
Most working South Africans rely on the money saved in their employer’s retirement fund to provide them with an income in retirement. For many people, these are their only formal savings but too often, this money is not enough to sustain them in retirement.
Alexander Forbes Member Watch, an unrivalled analysis of over one million retirement fund members’ behaviours and retirement outcomes, has found that more than 50% of pension fund members who retire each year receive less than 20% of their pensionable salary as an income in retirement.
The first problem is that people don’t consciously connect what they are contributing now and what happens when they retire in the future. It is an abstract concept that people struggle to connect with. Retirement funds need to point out the long-term implications and what members should be aiming for, to help them make that connection. Yet people remain focused on the immediate implication of long-term saving, which means they have less money today.
Generally most members default into the lowest contribution category. If you’re saving 13% of your pensionable salary for your entire working life, you will get less than R60 for every R100 earned at retirement, as a pension income. But if you’re saving 17%, then R75 for every R100 is achievable.