SA’s retirement environment is in flux, but for reasons other than those in the UK, says Rob Rose. Our increasingly precarious economy and the fact that so few people have enough retirement savings to begin with need addressing.

The fright among pension funds is palpable across the globe right now, as the rampaging US dollar and inflation have ramped up concerns about how vulnerable retirement savings are to this new world order.

In the UK, the country’s central bank, the Bank of England, had to intervene in a GBP65bn bond buying spree to rescue pension funds, after the country’s new prime minister Liz Truss destabilised the economy by suggested a slew of unfunded tax cuts. The Bank of England actually admitted that a “large number” of pension funds, built around the widely-practiced “liability-driven investing model, came close to collapse” after the meltdown.

While Truss has since reversed her tax cut plan, it has left global pension funds edgy. In particular, the speed of the UK crash illustrates that in a world where inflation is back in a big way, and central banks are responding in often unpredictable ways, anything can happen. While SA, of course, has its own problems, the Reserve Bank isn’t one of them.

Under the judicious management of governor Lesetja Kganyago, it is comforting that the SA bank isn’t likely to do anything silly anytime soon. But having said that, SA’s retirement environment is equally in flux, but for other reasons – not least our increasingly precarious economy, and the fact that so few people have enough retirement savings to begin with.

In recent days, 10X released its fifth annual “retirement realities” report, which laid bare the cognitive dissonance of how many people save for their retirement. This report is based on the findings of the 2022 Brand Atlas Survey, which tracks the lifestyles of 15.4m economically active South Africans. 

For example, when asked about their retirement plans, an alarming 46% of South Africans polled replied: “I don’t have a plan”, while another 22% said their plan is “a bit vague”.

“The bottom line is that 68% of people surveyed say they have no retirement savings plan at all, or just a vague idea of one. That translates into a lot of people who will probably be forced to rely on family and friends, or to try to eke out a living on SA’s older person’s grant of a maximum of R1980 per month, or R2000 for those older than 75,” says 10X.

For many people, this lack of savings is enforced: 70% of people in the survey said they just couldn’t afford to save. But for others, this isn’t so – rather, it’s bowing to the short-term needs, at the expense of the long-term picture.  This is the conundrum created by SA’s imminent two-pot retirement system, in which retirement savings will be split into a longer-term preservation pot, and a shorter-term savings pot, which could be accessed in the event of an emergency.

While trade union federation Cosatu says it likes the two-pot system, which it believes “can help reduce the need for indebted and struggling workers to resign and cash out their entire pension funds, as frequently occurs currently”, it argues it doesn’t go far enough. Rather, Cosatu argues, the new system needs to “provide for immediate relief” for workers when it comes into effect, and not “simply apply to savings going forward” since workers are “in debt now, and need relief now”.

In other words, the unions argue, workers need access to their pension savings now. There are, of course, no doubt many instances where the unions are indeed correct, and people legitimately need access to these emergency savings. 

But is there enough recognition that dipping into your retirement savings now will rob your future self of food on the table? The answer, if you read between the lines of that 10X retirement realities report, is very clearly a resounding “no”.  In a world where anxiety over funding retirement is suddenly that much more acute, it’s more critical than ever that we make the right moves now.