The Sanlam Benchmark Survey, a yearly analysis of the local retirement fund industry, shows that retirement fund members suspended their contributions across all fund types for an average of four-and-a-half months in 2020 due to the effects of the Covid-19 pandemic.
The survey, which was released on Tuesday, also shows that 27% of stand-alone retirement funds and 41% of participating employers in umbrella funds suspended contributions to their retirement funds as the pandemic and consequent lockdowns resulted in mass retrenchments and severely constrained consumer finances.
By opting to suspend retirement fund contributions, investors may have missed out on the extraordinary market rally in 2020 as the JSE all share index jumped more than 70% from its lowest levels last year.
The survey, in which data was collected between March 17 and April 28, covered 90 stand-alone funds, 10 stand-alone trade union funds and 100 participating employers in commercial umbrella funds.
The 10 trade union funds alone represent R109bn in assets and 512,200 members. The average size of stand-alone funds that participated in the survey was 10,015 members and R3.45bn in assets, while the average umbrella fund had 594 members and R299m in assets.
Employers covered in the survey spanned manufacturing, financial services, agriculture, wholesale and retail, transport, health-care and several other sectors.
“The ultimate financial effect of Covid-19 was the reduced contribution level due to contribution suspensions,” said Sanlam Corporate CEO Kanyisa Mkhize, adding that the pandemic has been a big setback for SA retirement fund members.
“The industry also recorded an increase in the number of employees cashing in a significant proportion of their withdrawal benefits.”
Pay reduction
The survey reveals that 7% of stand-alone funds in SA are in the process of liquidation, while 40% of funds and employers polled indicated that their members or staff have suffered a reduction in pay.
Almost one in three funds surveyed experienced a reduction in workforce due to retrenchments and liquidations up to the end of April 2020. Almost 80% of funds surveyed said their members experienced either a reduction in pay, a reduction in their expected annual increase, or were forced to take unpaid leave or experienced retrenchments or liquidations.
Throughout its 40-year history the survey has repeatedly highlighted the lack of adequate preservation of retirement savings as a major issue for the local industry and economy as many retirees are left unable to maintain their lifestyle once they stop working.
It is noted in the survey that there has been an improvement in the behaviour of retirement fund members in making use of retirement benefit counselling when leaving their employment since the 2019 introduction of regulations requiring proactive counselling.
However, this had not necessarily resulted in an improvement in the preservation of savings. In fact, 57% of stand-alone funds indicated that they had not seen an improvement in member preservation since the introduction of the regulations in 2019.
Cyber fraud
One positive outcome of the pandemic has been the increased propensity of employers to focus on the overall wellbeing of their employees. Half of stand-alone funds and 36% of employers who participate in umbrella funds say integrated health and financial wellness programmes delivered higher productivity and employee satisfaction. Other funds agreed that both health and wellness programmes were critical but addressed these through separate programmes.
The survey also shows that the risk of cyber fraud has been amplified by more people working remotely, though most funds and employers have been proactive in mitigating the risk by upgrading their security software and procedures.
The consolidation of stand-alone funds into umbrella funds also accelerated during the pandemic, with the Financial Sector Conduct Authority reporting 1,500 active registered funds in 2020, well down from the more than 16,000 recorded in the early 1990s.
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