CAPE TOWN – Having money deducted from your salary and invested in a corporate retirement savings fund before you get a chance to spend it might sound like a good idea, unless of course it is being sunk into an under-performing fund that charges extortionate fees.
This is a truth that many South Africans discover only when it is too late, that is when the day comes that they must rely on their retirement savings to pay their bills.
10X Investments’ second annual Retirement Reality Report (RRR19), which was released this month, exposed a terrifying level of disengagement among workers about corporate retirement funds they belonged to.
The report was based on the annual Brand Atlas survey, which samples the universe of economically active South Africans (15,1m in 2019) as defined by StatsSA as those with a monthly income in excess of R7,600 per month.
More than half of the survey respondents who said they had some sort of a retirement plan even if it was just a vague one (almost 54% of the total) had at some point belonged to a corporate retirement savings fund. More than 60% of them said they knew little or nothing about the fund or were not interested.
Hilan Berger, Head of Institutional Business Development at 10X Investments, says the near-epidemic level of disengagement among fund members did not serve them or their employers at all.
“We see fund members lose interest and become disengaged when there is no proper communication from the employer and/or fund to the members,” said Berger. “Disengagement, which inevitability means disempowerment, is also often a result of unnecessary complexity and a lack of transparency in many corporate scheme offerings.”
He added that employees should also not just close their eyes and hope for the best, which seemed to be the case with the majority of corporate fund members surveyed for the RRR19.
Berger said the employer’s role, together with their fund provider, was to educate fund members and keep them informed and up to date about their fund’s benefits. “Regular, clear communication is very important and will alleviate a lot of the anxiety experienced by members,” he said.
Slightly more inspiring news in 10X’s report is the fact that 37% of those who were part of a corporate fund said they wished they knew more. To which Berger responded that employers who compelled their staff to join a pension fund yet failed to educate, or even inform them about it were really missing a trick.
“Membership of a retirement fund should be seen as an important benefit of full-time employment. Membership of a great retirement fund should be the sort of perk that makes a company stand out as an employer of choice,” he said.
Fund members who want to know about their fund should start by asking their Human Resources manager to point them in the right direction if they can’t answer the questions themselves.
Questions fund members may want to ask range from how much disability cover they have to what the rules are around top-ups or additional voluntary contributions, and even the all-important, game-changing question of how much of their savings are being paid away in fees.
The RRR19 confirmed that South Africa was sitting on a retirement time bomb with so many people not planning at all and most of those were planning, including millions of disengaged corporate fund members, knowing dangerously little about their plan.
The report noted that retirement saving was a very low priority item for South Africans, which is why the bigger picture looks so bleak. All the evidence suggests that Treasury got it right, or perhaps even over-estimated, when it said that only 6% of South Africans are on target for a decent retirement.
The report made it very clear that people who thought planning for retirement was a luxury item had it wrong: “South Africans need a wake-up call. Retirement saving is not discretionary spending but rather a necessary long-term investment for every working South African.”
Including data on corporate retirement funds for the first time this year, 10X’s Retirement Reality Report highlights the fact that corporate retirement funds are often the introduction that individuals get to planning for retirement.
The RRR19 also shows what a great opportunity is being missed for companies to get involved in educating their employees and helping to set them on the path to a decent retirement.
“Many millions of South African employees have already agreed to have part of their earnings deducted and invested on their behalf; how much harder would it be to get them to engage with the process and to work with them to maximise their investments,” said Berger.
Content supplied by 10X Investments.