By Laura du Preez

Surveys, whether you love or hate their dipstick research and the generalisations that come out of them, are giving us more insights into the financial realities for South African savers and a glimpse into how we think about saving.

There’s been one consistent theme too: pension fund members need more education, not only about retirement products, but about how to save long-term and to balance current spending priorities with our needs in later life.

The most recent retirement savings survey from FNB – the first from a bank – provides interesting insights into South Africans’ actual spending habits, rather than just self-reported data.

Aside from the FNB data, the retirement industry has two leading surveys from retirement fund administrators, Alexander Forbes’ Benefits Barometer and Sanlam’s Benchmark Survey. These give us a good idea of the average contribution rates and replacement ratios for employees from all income groups saving money in employer-sponsored funds.

But, with depressing regularity, the data gleaned from employer-sponsored and umbrella retirement funds show that members contribute too little, for too short a time and largely fail to preserve their savings. Their likely replacement ratios are not much above 30% of their income.

Both administrators also regularly report insights on how pension fund members feel about their retirement savings and their future retirement.

Sanlam’s Benchmark Survey, for example, included the following from its Member Insights Survey:

  • Only three in 10 respondents reported that they were fully conversant with the retirement benefits provided by their employer.
  • Four in 10 had no confidence in understanding the investment tools provided to enable them to make appropriate investment choices on their retirement savings.
  • 54% don’t know how to structure their own retirement portfolio.

The information deficit

For the past five years, 10X Investments has published its Retirement Reality Report based on insights from Brand Atlas research of 15.4 million economically active South Africans over the age of 16, earning at least R6000 a month and with access to the internet.

Alarmingly, the 10X survey last year reported that 46% of those surveyed don’t have a retirement savings plan, 23% have a pretty good idea about their retirement savings plan and just 8% have a properly thought-through retirement plan for their retirement.

Asked why they aren’t saving for retirement, the survey confirms what we already know: people say money is just too tight.

But the survey also shows too few people are engaging with their retirement fund benefits. The 2022 survey highlights that just over a third (36%) of members of employer-sponsored funds believe they have a good understanding of their benefits. A quarter admit they have no idea at all or aren’t really interested, and the remaining 39% say they know little but wish they knew more.

This is a little out of sync with the latest survey report from FNB – a survey of 1000 respondents, both online and face-to-face, spanning income groups from those earning less than R4000 a month to those earning more than R150 000 a month.

FNB found on average 74% of its respondents – anything from 28% (lowest income earners) to 96% of its respondents – had a retirement plan.

But the survey acknowledges the effectiveness and adherence to these plans differs greatly, with mostly only those in higher income groups having solid plans. Many respondents viewed savings in bank accounts, other investments including cryptocurrencies, their businesses or family as a retirement plan. The survey found 16% of people under the age of 60 said crypto assets were part of their retirement plan.

Respondents to the FNB survey from all income brackets also agreed that they could do with more information about saving for retirement.

Respondents to the FNB survey identify the barriers to saving for retirement as:

  • Can’t afford to save – all disposable income spent on other financial priorities (49%).
  • Don’t have enough information about how to plan for retirement (15%).
  • Don’t know where to get saving and investment products (14%).

Both the FNB and 10X surveys highlight how many South Africans believe saving for retirement is something they can achieve later in life.

The 10X survey found more than half of those surveyed believed they could save for retirement in less than 30 years, while 11% think less than 10 years is long enough.

The FNB survey found, on average, people start saving for retirement at age 41. The average age at which 18-25 year olds said they plan to start saving was 31, while for 26-35 year olds the average was 36.

Among over 60s, the average age at which they started saving was age 36. South Africans do not appear to be aware that most retirement funds aim for replacement ratios after 40 years of saving.

Most recently, the regulator, the Financial Sector Conduct Authority (FSCA), conducted a South African financial customer behaviour and sentiment study. This survey of 1200 respondents and deeper interviews found that only one in five respondents thought getting a pension product was important. A tiny number thought getting a retirement product was important for their children. The FSCA says this suggests there is no appreciation of the need to start to save for retirement early on.

The FSCA research found respondents were frustrated with retirement products mostly because of the difficulties experienced when trying to withdraw. They said retirement product providers do not adequately explain pay out rules and regulations and give poor advice.

Retirement fallacies

Among those not saving for retirement, 7% cited the reason for not doing so being that they would not retire. The FNB survey found that, in reality, many South Africans do not retire – among the over 60s canvassed, almost 80% were still working.

Lower-income earners are only expecting to retire at age 79 and middle-income earners are aiming for age 69.

As the 10X survey points out: “It is, of course, not as simple as that. No one is … immune to ageing, incapacity or redundancy.”

The time it will take to save and the length of time they can continue to work aren’t the only misconceptions.

The FNB survey shows that many people believe they will retire with 100% or more of their current income – a far cry from the 30% or so identified by the administrators as average replacement ratios.

The FNB survey found as many as 30% of its lowest and middle-income earners believed they would retire at the same or higher standard of living. In all income brackets, 50% or more of the respondents believe they will retire with an income of 75% or more of their current income.

Juggling the trade-offs

Every year, Old Mutual conducts a survey of 1500 South Africans earning between R8000 and R100 000 a month. It’s no surprise that this year’s survey found South Africans largely feel stressed about their finances and have been dipping into savings and borrowing to make ends meet.

Some have been cutting back to make ends meet, with 70% seeing loyalty points as their saving grace. The survey records that cheaper streaming services (40%), cheaper supermarket brands (36%), cutting down on domestic help (33%), cheaper cellphone and data services (29%), postponing major purchases (29%) and moving kids to cheaper schools (11%) were the lesser chosen options for managing rising costs.

A comfortable retirement is the top financial goal for 47% of all Old Mutual survey respondents, while 63% of those earning more than R40 000 a month cited it as their top goal.

When seen together, all these surveys show that goals and behaviour are clearly misaligned, and financial services companies see a role for themselves in providing education to fix this.

FNB recently launched Money Coach, a financial wellness tool on the FNB App, and plans to give its customers retirement and other savings nudges. Old Mutual has added a financial education AI chatbot too.

The FSCA’s draft position paper on open finance – which will allow consumers to consent to their financial information being shared with third parties – should fuel further innovation of educational tools. Retirement funds should be ready to adopt and assist.