A GENERATION OF UNWILLING PENSIONERS
Fran Troskie, Investment Research Analyst, RisCura
As a generation of baby boomers reaches retirement, and as people live longer due to medical advances, an important question is getting more attention globally: What is the right age to retire? Should SA’s aging workforce be working – and contributing – for longer?
Particularly in more developed markets, retirement reform has seen the retirement age increase, at times sparking the ire of would-be pensioners. But, there is also a flipside, particularly in countries where pension provisions are inadequate.
Picture a 64-year-old engineer, a year away from being pensioned off. He’s grateful to have his health and looks forward to a touch of leisure. Yet, mostly, he’s concerned because he knows he only has one year of working left to contribute to a comfortable retirement. Several factors makes this seem like a pipe-dream:
- Past mistakes: Cashing out his retirement savings when he changed jobs 20 years ago, and choosing the lowest contribution rate;
- Present circumstances: Was not offered an in-fund annuity by his employer and did not receive financial education on retirement saving;
- Future prospects: With advances in medicine, he believes his retirement years will last longer than he’d foreseen 20 years ago.
Unfortunately, there isn’t much he can do to change the above. But, one thing he could do to improve his financial situation is to keep working – and contributing to his retirement savings. Company policy, however, doesn’t necessarily allow him to. It may impose mandatory retirement, with normal retirement age at 65.
In many respects, he believes he’s a more valuable employee now than ever before. He has a lifetime of knowledge, learning, and experience. He’s the first one in the office in the morning, and the last to leave, since an empty nest means there are fewer responsibilities for him at home.
He is one of thousands of highly-skilled employees facing a financially uncertain future after unwillingly retiring. There is a whole generation of people who believe they are still fully capable of making a meaningful contribution to society – but the current employment system seems to underestimate their value. And, in a country like South Africa with soaring youth unemployment rates, they know that finding gainful employment elsewhere is highly unlikely.
Statistics SA’s Q2 Quarterly Labour Force survey released in July 2018 has few positives to report. Compared to last year, the national expanded unemployment rate increased by 0.5 percentage points. The proportion of youth aged 15 to 24 who were not in employment, education or training (NEET) increased by 0.7% over the same period. At 39%, this means that an average of four per ten youths are unemployed, but are not in education or training to become employed. Within this context, the prospects for people of pensionable age are dim.
There are no simple solutions, but the retirement industry and government policymakers should take into account that policies and regulation should encourage trustees and investment consultants to help ensure that:
a) members receive sufficient financial education throughout their working careers;
b) funding models are appropriate (life stage models and asset-liability matching);
c) members are provided with appropriate savings-options at retirement (annuities/in-fund annuities).
Government may need to reconsider how it uses the longer-lived grey workforce. An added emphasis on skills transfer programmes would be laudable – not only in terms of making efficient use of valuable human capital, but also in addressing some of the concerns about youth NEET. Educated and experienced elderly instructors could work in training colleges, even if only on a temporary and substitute basis. Mentorship programmes can also add to the socio-economic impact of such initiatives. And, if such work were to be compensated (potentially partly by revisions to the old age grant system), all the better.
Deciding which interventions are feasible, needs more attention. But, at the very least, it is clear that a generation of unwilling pensioners and a growing grey workforce should not be left in the cold.
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