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By Mayuri Reddy, 28 May 2015
The two main reasons for this dismal statistic are retirement fund members cashing in on their savings after retrenchment or resignation, and apathy towards making provision for their own retirement.
These are some of the key findings of the 2015 Sanlam BENCHMARK Survey, a comprehensive annual review of South Africa’s retirement industry. Now in its 34th year, the BENCHMARK Survey polled over 1000 retirement fund members, pensioner, trustees, employer representatives and principal officers.
Mayuri Reddy, marketing strategist at Sanlam Employee Benefits, says not preserving retirement savings when changing jobs, for example, is the biggest mistake fund members make on their retirement savings journey. “The survey results indicated that many people are not aware of the tax implications of non-preservation (49% of members surveyed), nor do they fully understand the impact on their retirement outcomes (45%).”
Reddy says the number of fund members not engaging with their retirement savings or understanding investment decisions is a matter of “serious concern”. Of the 42% of members invested in their fund's default investment portfolio, the majority (70%) did so because they trusted the trustees of the fund to make sound investment choices. But 87% said they had not voted for the trustees, and 75% could not name a fund trustee.
The second most common reason members gave for investing in the default portfolio was to achieve growth, but they were not overly concerned with exactly how they were invested. Furthermore, 72% never come back to reconsider their initial decisions regarding their retirement benefit options.
“The member apathy that is apparent from the reasons given for being invested in the default investment portfolio, together with the fact that few members will revisit their retirement decisions during their working lifetimes, means that trustees are taking on huge responsibility for ensuring that members are appropriately invested at various stages of their lives. As a result, we see many trustees (61%) using life stage strategies as the default option in order to provide younger members with sufficient exposure to growth assets, while ensuring that members closer to retirement are not exposed to excessive risk."
One of the key messages that emerged from this year’s results is the crucial importance of a holistic approach to the financial needs of each individual retirement fund member. The non-preservation of retirement funds is having a huge impact on people’s retirement outcomes, but we can’t just ignore people’s short-term financial needs. The recently introduced tax-free savings accounts could go a long way towards creating awareness that there are other ways to address these needs without dipping into retirement savings.
“Members must realise that dipping into their retirement savings - which they are effectively doing by not preserving - is like borrowing from your future self, at a very high interest rate and with no intention of ever paying it back. We need to start being more self-disciplined with our finances in order to have a self-sufficient and enjoyable retirement,” Reddy concludes.