By Vernon Wessels
For many, retirement planning goes beyond numbers; it’s a deeply emotional issue where immediate needs or desires often take precedence over future security.
While many recognise the importance of saving for when they’re older, the high cost of living and a lack of financial knowledge hinder those who want to save, according to the 2024 FNB Retirement Insights Survey.
The survey found that an alarming 48% of South Africans under 60 are not planning for retirement, which suggests they may end up being a burden on a cash-strapped state already leaning heavily on a small group of taxpayers.
Among the nearly 1 100 FNB clients surveyed, 25% felt “off track” with their retirement plans, due to low salaries, debt, or a belief that they had time to save. Many without savings said they didn’t know where to buy retirement products. By contrast, those who were confident in their progress started early, lived within their means, cut debt, and had multiple income streams.
“Those who feel they’re lagging behind can be consumed by feelings of regret and inadequacy, which can paralyse their efforts to put a solid plan in place,” says Bheki Mkhize, CEO of FNB Wealth and Investments.
“Others who’ve yet to start planning may feel defeated or resort to avoidance. Even those who’re inclined to plan may fall victim to procrastination in the face of the many complexities involved.”
The findings underscored the deep divide between income groups in the most unequal society in the world. Those with higher salaries were better prepared, while those with lower salaries spend most of their money on food, with their problems exacerbated by unemployment, inflation or emergencies.
Fears and preferences
Mkhize emphasises that retirement-planning advice must be accessible to rich and poor, while innovative strategies, such as incentive programmes that link future benefits with present rewards, can further promote savings.
The survey revealed that, while many institutions focus on well-designed products and services, more attention is needed to better understand their customers’ preferences. Practical planning tools and accessible education across various channels are crucial.
What complicates the picture is that many individuals are working beyond the traditional retirement age – 76% of high-income earners already do so, due either to financial circumstances or personal choice, says Samukelo Zwane, head of FNB Wealth and Investments.
For them, retirement is “a life stage, rather than a one-off event”.
But low-income earners struggle to keep working. Only 13% continue to work, relying on social grants or income from their children to fill the gap.
The study found that more than 38% of people older than 60 were still working full-time, 25% were fully retired with no income, 30% had a second income and 7% were working part-time.
Silver lining
In terms of overall spending, respondents allocated 20% to food, 7% to clothing and 7% to savings. But when it came to how individuals spent their money, again there were vast differences across the salary spectrum.
Those in the middle-to-affluent segments, earning above R180 000 per year, spent 20% on insurance and medical care. Those earning below R36 000 per year spent a disproportionate amount on clothing and consumables, compared to savings.
One of the striking findings of the FNB Retirement Insights Survey was that, despite careful preparation, many retirees ended up worse off than they expected – and this was more acute for those who earned the least.
Still, Zwane is confident that the new two-pot regime, which will mandate the preservation of two-thirds of retirement savings when an employee leaves a job, will bolster South Africa’s retirement system.
It’ll also help, in the short term at least, that South Africa’s inflation rate has been dropping, which will lead to lower interest rates. This could free up more money for long-term savings, Zwane said.
South Africa’s poor savings culture has been worsened by a stagnant economy, one of the world’s highest unemployment rates (at 32.9%), and widespread corruption. At the same time, shoddy service delivery has spurred protests and increased support for populists, at the expense of the African National Congress (ANC). As a result, the ANC lost its majority and had to form a Government of National Unity (GNU) with the main opposition Democratic Alliance.
But, should economic reforms accelerate under the unity government, this is likely to benefit retirement-fund portfolios as equity values rise, and foreign investors who have shunned the country in recent years return.
This would require a turnaround in business confidence, however. A Sanlam Benchmark Research study recently found that 60% of pensioners see corruption as the biggest obstacle to addressing the country’s issues.
“With a GNU government in place, there are optimistic tailwinds that we should all cautiously embrace,” says Nzwa Shoniwa, managing executive of Sanlam Umbrella Solutions.
A stronger economy would likely ensure that fewer people will have to access the new “savings pot” under the two-pot system as an emergency measure.
Financial stress has evidently increased in recent months. In 2022, 31% of respondents to the Sanlam survey said they would access funds from their two-pot savings component. This year, however, that number jumped to 59%.
This illustrates how high the stakes are for President Cyril Ramaphosa’s new government.
