Retirement — what is that?

The rising cost of living is eroding people's ability to save and plan for their retirement, with many expecting  to continue working beyond retirement age, according to the FNB Retirement Insights survey 2024 released this week.

The survey underscores South Africa's poor savings culture, finding that 48% of South Africans under 60 have no plan in place for their retirement as immediate financial responsibilities take precedence.

Of those surveyed, 84% cited finances and a lack of information as a barrier to planning, 27% said they would rely on a government pension or their family for retirement, while 4% said their businesses would provide.

Half of respondents under 60 said they had been able to save towards retirement through cutting costs, living within their means and focusing on paying off their debts, including credit cards. They also had other income streams.

The research said savings accounts, retirement annuities and pension or provident funds made up most retirement planning, while some also invest in property and stokvels.

This means when people retire, they basically rely on their kids. You are never breaking the
cycle of the sandwich generation, where people are looking after parents and their kids.

—  Bheki Mkhize, CEO of FNB Wealth and Investment

Speaking at the launch of the report in Johannesburg, Bheki Mkhize, CEO of FNB Wealth and Investment, said most South Africans were inadequately prepared for retirement.

“Many South Africans do not have adequate retirement plans in place due to limited financial resources and a lack of necessary information to make informed decisions. This points to a critical need for enhanced financial education and accessible retirement planning services.” 

Mkhize said dependence on government grants and family for retirement was a reality given people's financial constraints.

“This means when people retire, they basically rely on their kids. You are never breaking the cycle of the sandwich generation, where people are looking after parents and their kids,” said Mkhize.

He said while financial constraints were a reality, consumers fell into the instant gratification trap. “People would rather buy that pair of shoes now rather than put R300 a month away towards retirement,” he said.

FNB's Wealth and Investments chief investment officer Renzi Thirumalai said: “You need three-quarters of what you had prior to retirement. If you had R100 prior to retirement, you would require R75 in retirement. The reason for that is you should now lower your lifestyle.”

A comfortable retirement meant consumers had to save 15% of their income for at least 40 years of their working lives, he said.

The report was based on a sample of 1,072 of the bank's clients aged 18 and above and was conducted through qualitative surveys and face-to-face interviews between January 12 and February 2 this year.

The surveyed customers were those in the entry wallet segment, earning up to R3,000; entry banking, earning between R3,000 and R15,000; middle market, from R15,000 to R40,000; emerging affluent R40,000 to R70,000; affluent, R70,000 to R150 000; and the wealth segment, whose earnings exceed R150,000 a month. 

The high cost of living is felt especially in the lowest segment, where over 60s spend at least 46% of their income on groceries compared to their middle market, emerging affluent and affluent counterparts who spend 17% on groceries. The entry banking segment spends 27% on groceries and the emerging affluent segment 15%.

FNB economist Siphamandla Mkhwanazi said the high cost of living was disproportionately felt by lower income earners.

of South Africans under 60 have no plan in place for their retirement as immediate financial

responsibilities take precedence.

—  IN NUMBERS: 48%

“The 2024 survey results bear this out, suggesting that lower-income earners allocate a large portion of their budget to debt service costs, leaving less than optimal amounts for retirement savings.” .

Savings and investments are a function of income, with middle to high income earners contributing at least a fifth of their income to insurance and medical aid, said the report.

All respondents had debt, including retail store cards, personal loans, credit cards and loans from family and friends.

“People still have debt in retirement and the type of debt is short term debt like retail store cards,” said Samukelo Zwane, head of product at FNB Wealth and Investments.

The report  paints a bleak picture of income disparities when it comes to retirement savings and planning. The upper income segments tend to have a plan for their retirement, whereas their counterparts in lower income segments have no plan.

“Significant disparities exist across different income segments, with lower-income individuals facing more challenges in retirement planning. These segments are less likely to have structured retirement plans and are more affected by economic adversities,” Mkhize said. 

The report also found that the definition of retirement is changing because people either transition to a second career or want to do more because they cannot afford to retire, or have a new passion. And with life expectancy increasing, people are able to continue working for longer.

“A significant proportion of individuals, especially in the higher income brackets, plan to supplement their retirement income through continued work. This trend indicates that retirement is no longer seen as a complete withdrawal from the workforce but rather a transition phase.” 

Lytania Johnson, CEO of FNB Personal Segment, said: “The gap between retirement expectations and reality is also concerning, with many respondents anticipating maintaining their living standards despite inadequate provisioning, particularly among younger respondents.

“This false sense of security highlights the importance of financial education tailored to specific age groups and financial literacy levels.”

The study found over 38% of over-60s still work full-time, 25% are fully retired and do not earn an income, 30% are retired but earn a secondary income and 7% work part-time.

The two-pot system that comes into effect in September will help the retirement industry, said Mkhize. Under the current laws in the country, employees can access their full retirement fund if they resign from their job or are retrenched . However, once the two pot system is implemented, employees will be able to access a portion of the fund, without having to quit their jobs and still have some money preserved for retirement.

“In the longer term the industry and its members will be better off for having a two pot system than not. We think National Treasury has struck a good balance between savings for retirement in the long term versus the ability to access for liquidity in the event of an emergency. We want to educate people about the outcomes and how those can be materially different if you save your savings pot versus if you dip into it for things that are consumption related. It is the biggest change in the retirement space in the last 30 years.”

The 2024 Sanlam Benchmark survey found that 22% of its participants were planning on accessing a portion of their retirement fund as soon as the law allows, with 27% saying they would access the fund only in emergencies.

For those who want to take advantage of the two pot system, 33% were planning on doing so to pay off their debt and cover living expenses, said Sanlam.

FNB survey also revealed a disparity in the sources of advice between income groups, with wealthier individuals more likely to engage with professional financial planners, while those from lower-income groups often rely on less formal sources of advice, which may not always provide the necessary depth and breadth of information required for effective planning.

“It’s clear that financial services providers need to take a more inclusive approach to retirement planning and investment advice, because the income groups who are most in need of our guidance and support are still accessing their advice from other, often less reliable sources,” Johnson said.