By Nico Strydom
Up to 55% of retirement fund members had a smaller household income because of Covid-19, with 58% who began to live more frugally and cut out all luxury items, and 18,5% who had access to some or other long-term investment to survive financially.
Kanyisa Mkhize, CEO of Sanlam Corporate, says on the positive side 30% lowered their levels of debt after the pandemic. These are some of the findings in Sanlam’s benchmark report on retirement planning.
“Many of the reactions in the study suggests that a more conservative and financially conscious South African came forth out of the pandemic,” according to Mkhize.
The report found that 7,39% of members increased their retirement savings and that this can explain the small increase in the average member contributions.
On average people change jobs five to seven times during the course of their careers and it can be tempting to have the retirement savings paid out because at that point in time it may look like the best solution. This could, however, have a devastating effect on the person’s long-term retirement plan. According to the report the best option therefore is to transfer the funds to the new employer’s pension or provident fund, a retirement annuity or a preservation fund.
Sanlam’s research did find that more South Africans were beginning to see the importance of saving for retirement, with 42% of consumers who were screened indicating that they would not have their retirement fund benefits paid out when they change jobs. Only 9% indicated that they would consider withdrawing their retirement benefit as a cash amount.
There are a number of reasons why individuals would want to go for the cash option. The main reason is that people do not have cash and are deeply in debt, which leaves them with little or no choice other than having their benefits paid out.
Some disturbing tendencies that came out of the report, are that 14,37% of respondents incurred additional debt, with more than 8% who lowered their life, disability and funeral cover.
However, some positive changes in people’s spending were noted, with 58% cutting down on luxuries, 31% who were saving money they would have spent on commuting, lunch in the office and take-away meals, and 27% who reviewed their policies.
Regarding the National Treasury’s proposal of a “two-pot system” for retirement funds, just more than half of the respondents said that they were aware of the proposal. This system will mean that retirement contributions will be restructured into two pots – one pot can be accessed at any time while the other will not be accessible before retirement. One-third of all future contributions go into the accessible pot, while the other two-thirds go into a pot that will be saved until retirement.
Of the respondents who knew about the proposed system, 56% said they did not agree with it, with 29% who said that should the law be changed they would definitely not touch their retirement funds prematurely and 20% who said that they would “probably” not touch it. Some 62% also said that if they could, they would increase their retirement savings.