Alexander Forbes’ annual member insights survey has highlighted the dire retirement prospects facing most SA workers.
The survey, which uses data from all the SA retirement funds administered by the company and covering almost 1-million members and 2,400 employers up to end-December 2020, shows that local workers are on average projected to enter retirement with an income of just 40.51% of their final salary.
Only about 6% of those surveyed are likely to enjoy a retirement income above 75% of their final pensionable salary when they stop working.
The results “serve to amplify our collective responsibility to better connect with members via access to information, education, counselling and advice,” said John Anderson, executive of investments, products and enablement at Alexander Forbes.
“We have hard evidence of the impact on decisions when such connections are improved and are convinced that this will make a positive impact on people’s lives.”
The survey, which has grown from 320,000 members and 460 employers when it was first introduced in 2006, also showed the devastating impact of Covid-19 on savers’ retirement prospects due to many being retrenched or having to temporarily suspend pension contributions.
Alexander Forbes found that about 30% of the retirement funds it administers implemented contribution holidays or reduced contributions due to the pandemic. While many retirement funds have since recovered, about 5% still have such relief measures in place.
Millennials were the hardest hit financially by Covid-19 and were the generation most likely to default on their loans. Alexander Forbes’ survey showed that 14.11% of loans taken out by Early Millennials, a generation it defines as being 18 to 35 years old, were in default.
That compared to just 4.79% of loans taken by Late Millennials, those aged 36 to 45, and 2.27% of loans by Generation X, the cohort aged 46 to 55. Baby Boomers, the generation defined by Alexander Forbes as aged between 56 and 99, had the lowest loan default rate at just 0.94%.
The survey also highlighted SA’s pitifully low preservation rate, the proportion of retirement fund members who choose to preserve their pension savings when they resign or are retrenched or dismissed by an employer. It showed that more than 90% of retirement fund members do not preserve their pensions when leaving a job, which Alexander Forbes put down to a lack of financial acumen and the need for quick access to cash.
Alexander Forbes said this is why it supports the so-called “two-bucket” pension system proposed by the National Treasury, which would see pension savings split into one pot that must be preserved until retirement and another that can be accessed in emergencies. The fund administrator says this is a pragmatic solution that would meet the short- and long-term needs of retirement fund members.
The Actuarial Society of SA (Assa) said earlier this month that modelling done by its retirement matters committee had also shown that a “two-bucket” pension system would result in better retirement prospects for savers.
The Treasury is expected to provide further detail on the two-bucket pension system proposal during the medium-term budget policy statement scheduled for November 4.
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